                                  T.C. Memo. 2013-48



                            UNITED STATES TAX COURT



          JORGE PANEQUE AND LEOBIGILDA PANEQUE, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent

                       JORGE PANEQUE, Petitioner v.
              COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 15871-08, 16193-08.1                Filed February 13, 2013.



      William Z. Shulman, for petitioners.

      Erik M. Sternberg, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


      GALE, Judge: Jorge and Leobigilda Paneque (hereinafter, petitioners,

collectively, and Mr. or Mrs. Paneque, individually) invoked the Court’s


      1
          These cases were consolidated for purposes of trial, briefing, and opinion.
                                         -2-

[*2] jurisdiction pursuant to section 6404(e)2 to review respondent’s final

determinations (1) denying Mr. Paneque’s request for abatement of interest accruing

on unpaid Federal employment taxes, and (2) denying petitioners’ joint request for

abatement of interest accruing on unpaid Federal income tax. Petitioners contend

that respondent abused his discretion in denying their requests for abatement of

interest for the period October 21, 2005, through August 3, 2007.

                               FINDINGS OF FACT

      Some facts are stipulated and are so found. The stipulation of facts, with

accompanying exhibits, is incorporated herein by this reference. At the time the

petitions were filed, petitioners resided in New Jersey.

      During the periods at issue and thereafter Mr. Paneque was an accountant

who prepared Federal tax returns in the regular course of his business. Also during

these periods Mr. Paneque was the sole shareholder of JBDG Accounting Service,

Inc. (JBDG Accounting), and JLP Associates, Inc.

      Mr. Paneque concedes he is personally liable for Federal employment taxes

that JBDG Accounting and JLP Associates, Inc., reported but failed to pay for the

quarters ended March 31, 2000, to September 30, 2001, December 31, 2002, June


      2
      Unless otherwise indicated, section references are to the Internal Revenue
Code of 1986, as in effect for the years at issue.
                                         -3-

[*3] 30, 2003, and September 30, 2003 (employment tax liabilities). Petitioners

concede they are jointly and severally liable for income tax that they reported but

failed to pay on their Federal income tax returns for 1994, 1995, 1996, 1997, 1998,

1999, 2000, and 2002 (income tax liabilities). By the fall of 2005 petitioners’

income tax liabilities and Mr. Paneque’s employment tax liabilities for the

aforementioned periods totaled approximately $400,000.

      Petitioners engaged in the practice of submitting multiple, serial offers-in-

compromise (OIC). In the view of at least some Internal Revenue Service (IRS)

personnel, these offers were frivolous, designed to thwart collection. From

February through December 2004, petitioners, either jointly or separately,

submitted to the IRS at least five Forms 656, Offer in Compromise, based on

doubt as to collectibility. Petitioners jointly submitted an OIC of $60,000 on

February 20, 2004, to settle their outstanding joint income tax liabilities. That

OIC was returned to them on August 30, 2004, on the grounds that Mr. Paneque

was not current with respect to his employment tax obligations for the third

quarter of 2004. On December 3, 2004, petitioners jointly submitted an OIC of

$80,000 to settle their joint income tax liabilities and Mr. Paneque submitted an
                                         -4-

[*4] OIC of $20,000 to settle his employment tax liabilities.3 Then on December

31, 2004, Mr. Paneque submitted an OIC of $90,000 to settle his joint income tax

liabilities and his employment tax liabilities, while Mrs. Paneque submitted an OIC

of $10,000 to settle her joint income tax liabilities. Both offers were rejected by the

IRS in May 2005.4 A fifth OIC, submitted on behalf of JBDG Accounting at a time

not disclosed in the record, was rejected on September 29, 2005, because the

corporation had failed to file an income tax return for 2004.

      The OIC at issue in these cases was submitted by an attorney, Marc D.

Marsico (Mr. Marsico), on behalf of Mr. Paneque on September 22, 2005. This

OIC proposed to settle all of Mr. Paneque’s aforementioned joint income tax

liabilities and employment tax liabilities5 for $30,000. Mr. Marsico’s cover letter



      3
        Mr. Paneque’s $20,000 OIC to settle his employment tax liabilities was
rejected on September 9, 2005, on the ground of his failure to file employment tax
returns for 2004. The record does not disclose the disposition of the OIC
concerning petitioners’ joint income tax liabilities.
      4
        By letter dated June 17, 2005, petitioners’ attorney requested Appeals Office
reconsideration of the rejection of Mrs. Paneque’s December 31, 2004, OIC, but
there is no record of the disposition of that request or of what further action, if any,
was taken with respect to the rejection of Mr. Paneque’s OIC of that date.
      5
        The OIC recited that it covered employer’s quarterly Federal tax returns for
the taxable periods ending March 31, 1996, through June 30, 1998, and trust fund
recovery penalties for the taxable periods ending March 31, 2000, through
December 31, 2001.
                                        -5-

[*5] transmitting Mr. Paneque’s OIC indicated that Forms 433-A, Collection

Information Statement for Wage Earners and Self Employed Individuals, and 433-B,

Collection Information Statement for Businesses, accompanied the offer. These

forms are not in the record, however.

      On October 21, 2005, Mr. Paneque’s OIC was assigned to IRS Offer

Specialist Linda Washington (Ms. Washington).6 On November 29, 2005, Ms.

Washington concluded on the basis of her review of Mr. Paneque’s Forms 433-A

and 433-B that his “reasonable collection potential” (RCP)7 far exceeded his

$30,000 offer. Consequently, Ms. Washington determined that Mr. Paneque’s OIC

should be rejected, and she saw no reason at that time to review additional

background documents to verify the information contained in the Forms 433-A and

433-B.

      On December 13, 2005, Ms. Washington spoke with Mr. Marsico by

telephone and informed him that (1) Mr. Paneque’s RCP exceeded the amount of

his $30,000 offer, and (2) it did not appear that Mr. Paneque had paid income tax



      6
       Mr. Paneque’s OIC initially was mailed to the wrong IRS office, and there
was a delay of two weeks in transmitting the offer documents to Ms. Washington.
      7
        “Reasonable collection potential” is defined as the amount that could be
collected from a taxpayer from all available means. Internal Revenue Manual pt.
5.8.4.3 (June 1, 2010).
                                       -6-

[*6] that he owed for taxable year 2004,8 made estimated income tax payments for

2005, or made employment tax payments for 2005. During this conversation Ms.

Washington noted that Mr. Paneque was seeking to compromise joint Federal

income tax liabilities and inquired why the OIC was not joint. Mr. Marsico

informed her that Mrs. Paneque had previously submitted a separate OIC that was

under review in the IRS Appeals Office.9 Mr. Marsico requested additional time to

confer with Mr. Paneque regarding the compliance issues that Ms. Washington had

raised.

      On February 7, 2006, Mr. Marsico filed with the Taxpayer Advocate’s Office

a Form 911, Application for Taxpayer Assistance Order. Notwithstanding Mr.

Marsico’s earlier communications with Ms. Washington in December 2005, the

application stated that Mr. Marsico had made several phone calls to the IRS

regarding Mr. Paneque’s OIC but had received no response.

      On February 10, 2006, Ms. Washington sent a letter to Mr. Marsico and Mr.

Paneque stating that she had determined Mr. Paneque’s RCP to be $373,952 and



      8
       On December 15, 2005, Mr. Paneque sent a check to Ms. Washington for
$410 to eliminate the balance due on his income tax account for 2004.
      9
       On the record presented, the Court assumes Mr. Marsico was referring to
Mrs. Paneque’s OIC of December 31, 2004, initially rejected in May 2005 and
appealed by him in June 2005. See supra note 4.
                                         -7-

[*7] that therefore she could not recommend acceptance of his OIC of $30,000.

The letter enclosed worksheets showing the RCP calculation and advised that the

OIC should be increased or withdrawn by February 24, 2006, or it would be

rejected.

      By letter dated February 20, 2006, Mr. Marsico challenged several of the

assumptions underlying Ms. Washington’s computation of Mr. Paneque’s RCP but

nonetheless indicated that Mr. Paneque was increasing the amount of his offer to

$275,000.

      On March 23, 2006, Mr. Marsico called Ms. Washington to inquire about the

status of Mr. Paneque’s revised OIC. Ms. Washington informed Mr. Marsico that

she had received the revised OIC but had been placed on a special assignment and

she would have to call back later to discuss the matter.

      Sometime after March 23, Ms. Washington made revisions to her

computation of Mr. Paneque’s RCP, which increased it by approximately $3,000.

In a letter to Mr. Paneque dated April 14, 2006, Ms. Washington stated in relevant

part: “I have enclosed the revised worksheets for your review. As you can see the

reasonable collection potential amounts to $376,976.00. If you can increase your

offer to a minimum of $376,976.00 I can consideration [sic] an acceptance
                                        -8-

[*8] recommendation.” Ms. Washington indicated that Mr. Paneque should

increase his OIC to the amount specified by means of an amended Form 656.

      On May 1, 2006, Mr. Paneque submitted to Ms. Washington an amended

OIC of $376,976.10 On May 4, 2006, Ms. Washington called Mr. Marsico and sent

him a letter requesting additional financial information in support of Mr. Paneque’s

amended offer, including Mr. Paneque’s bank records for the period January

through April 2006. On May 9, 2006, Mr. Marsico sent a letter to Ms. Washington

stating that the financial information she requested had been provided to the

Centralized Offer in Compromise Unit in January 2006,11 that Mr. Paneque was not

inclined to compile the records again, and that Ms. Washington should either accept

Mr. Paneque’s amended OIC or reject it so that the matter could be appealed. In

response, Ms. Washington advised Mr. Marsico that if the requested information

was not received by May 23, the OIC would be returned.




      10
        Mr. Paneque submitted a Form 656 along with his amended offer, but that
form is not part of the record.
      11
         The financial information that Mr. Paneque purportedly submitted to the
Centralized Offer In Compromise Unit in January 2006 is not in the record. In any
event, it is clear that Mr. Paneque’s bank statements for January through April 2006
had not been provided to the IRS at the time Ms. Washington requested the
additional information.
                                        -9-

[*9] During the spring of 2006 the IRS National Office decided to disband the

OIC unit in New Jersey where Ms. Washington worked and reassign OIC review

work to an IRS office in Nashville, Tennessee. As part of this restructuring, Ms.

Washington was scheduled to be reassigned from her position as an OIC specialist

to that of a revenue officer. On May 9, 2006, Ms. Washington informed Mr.

Marsico that Mr. Paneque’s OIC would be reassigned to another IRS employee on

or about May 26, 2006.

      On May 16, 2006, despite his earlier protestations, Mr. Paneque provided

Ms. Washington with the additional financial information she had requested. Ms.

Washington’s last substantive entry in her case activity records regarding Mr.

Paneque’s OIC is dated May 26, 2006, and indicates that she had found

discrepancies between Mr. Paneque’s financial disclosures underlying his OIC and

his bank statements for 2006 that required further investigation. In addition, Ms.

Washington noted that Mr. Paneque’s recent disclosures revealed that he had

acquired an interest in real property in Union City, New Jersey, that had not been

listed on the Forms 433 previously submitted and required further investigation.

      Mr. Marsico’s case notes indicate that he telephoned Ms. Washington on

June 8, 2006, to inquire concerning the status of Mr. Paneque’s OIC. A

corresponding entry in Ms. Washington’s case activity records indicates that she
                                        - 10 -

[*10] received a voicemail from Mr. Marsico inquiring about status on June 9,

2006, and left a message for him that same day advising that the case has been

reassigned.12

      On June 12, 2006, Mr. Marsico asked Ms. Washington for the total amount

due from petitioners. She advised him by phone that same day that the total amount

of petitioners’ outstanding tax liabilities on that date was $424,432.77. On June 13,

2006, Mr. Marsico left a message for Ms. Washington requesting a so-called payoff

letter.13 Mr. Marsico’s case notes indicate that he received a payoff letter on June

15, 2006.

      On June 27, 2006, Mr. Paneque contacted Mr. Marsico and requested that

he obtain a payoff letter reflecting the total amount due from petitioners through

July 7, 2006. Mr. Marsico attempted to contact Ms. Washington by telephone on

June 27, 2006, and July 11, 2006, but he received no reply. On July 11, 2006, Mr.

Paneque informed Mr. Marsico that he could not afford to pay his tax liabilities in

full. On July 13, 2006, Mr. Marsico sent a letter to Ms. Washington asking that


      12
        There is no evidence in the record that Ms. Washington advised Mr.
Marsico or Mr. Paneque at this time or subsequently of the identity of a new contact
person at the IRS.
      13
        A “payoff letter” is issued to taxpayers who request the current amount that
must be paid to secure the release of a Federal tax lien. See IRS Publ’n 1468, at 5
(rev. Aug. 2006).
                                          - 11 -

[*11] Mr. Paneque’s OIC be rejected so that he could seek review in the Office of

Appeals.

      On September 5, 2006, Mr. Marsico received formal notification by letter that

Mr. Paneque’s OIC had been transferred to Nashville for review.14 Insofar as the

record discloses, this letter was the first notification of a new contact person at the

IRS for inquiries concerning Mr. Paneque’s OIC. After attempting unsuccessfully

to reach by telephone the IRS Nashville employee listed as the contact person, Mr.

Marsico responded by letter dated September 19, 2006, requesting that the

Nashville office reject Mr. Paneque’s OIC so that consideration by the Office of

Appeals could begin.15 The OIC was assigned to a new offer specialist, Ms.

Fiske,16 on September 29, 2006.

      On October 2, 2006, Ms. Fiske discussed the OIC with Mr. Marsico, and on

October 4 she advised him by letter that she would recommend that the OIC be

      14
        Although the notification letter is dated August 17, 2006, respondent does
not dispute petitioners’ requested finding that Mr. Marsico received it on September
5, 2006.
      15
         Mr. Marsico also stated that he had been advised by Ms. Washington, after
a full investigation, that she would reject Mr. Paneque’s offer with appeal rights.
The administrative record, however, indicates that at the time her assignment to
petitioner’s case terminated, she had concluded that because of discrepancies in Mr.
Paneque’s financial disclosure, his OIC warranted further investigation before
acceptance or rejection.
      16
           Ms. Fiske was assigned to an IRS unit in Santa Ana, California.
                                         - 12 -

[*12] rejected on the ground that Mr. Paneque was able to fully pay his outstanding

tax liabilities without suffering economic hardship. She enclosed tables showing

her computations of Mr. Paneque’s RCP.

       On October 26, 2006, Mr. Paneque informed Mr. Marsico that he was willing

to pay his tax liabilities in full.

       Ms. Fiske informed Mr. Marsico that her recommendation to reject Mr.

Paneque’s OIC was subject to review first by her group manager and then by an

independent administrative reviewer. On December 7, 2006, Ms. Fiske’s group

manager agreed with Ms. Fiske’s recommendation to reject Mr. Paneque’s OIC and

the matter was forwarded to an independent administrative reviewer.

       On January 4, 2007, Mr. Marsico left a message for Ms. Fiske requesting a

payoff letter. Mr. Marsico was informed that Ms. Fiske would be out of the office

until January 23, 2007. On January 6, 2007, Mr. Marsico filed a request for

assistance with the Taxpayer Advocate’s Office, requesting that Mr. Paneque be

issued a rejection letter with respect to his OIC so that he could appeal.

       On January 23, 2007, Ms. Fiske received a voicemail message from Mr.

Marsico requesting the amount needed to fully pay petitioners’ tax liabilities. Ms.

Fiske in turn left a message for Mr. Marsico indicating that she had requested

transcripts that would reflect petitioners’ payoff amounts and he should expect the
                                        - 13 -

[*13] transcripts on or before February 5, 2007. Ms. Fiske spoke with Mr. Marsico

by telephone on January 24, 2007, and discussed the account transcripts. Mr.

Marsico provided Ms. Fiske with the identity of a lender in need of a copy of

petitioners’ payoff letter, and she advised him of a telephone number to which a

third-party lender request for payoff information could be faxed.

      On February 12, 2007, the independent administrative reviewer sustained Ms.

Fiske’s proposed rejection of Mr. Paneque’s OIC. On March 5, 2007, Mr. Marsico

received a copy of the OIC rejection letter.

      On February 16, 2007, Mr. Paneque visited an IRS field office where he

attempted unsuccessfully to obtain a payoff letter. Mr. Marsico called Ms. Fiske

and left a message seeking her assistance. On February 26, 2007, Mr. Marsico met

with Mr. Paneque to discuss a fax from the IRS that included payoff information.

Mr. Marsico’s case notes indicate that Mr. Paneque intended to determine whether

his lender would accept the information.

      During the same period that Mr. Marsico was conferring with Ms.

Washington and then Ms. Fiske concerning Mr. Paneque’s OIC, Mr. Paneque was

in regular contact with Revenue Officer Maritza Matthews (RO Matthews)

concerning his failure to satisfy the employment tax obligations of JBDG
                                        - 14 -

[*14] Accounting (of which he was the sole shareholder).17 In late June or early

July 2006 RO Matthews had contacted Mr. Paneque because he had defaulted on an

installment agreement covering those employment tax liabilities. At that time, Mr.

Paneque advised her that collection efforts should be suspended because he had an

OIC under consideration.

      On March 2, 2007, RO Matthews contacted Mr. Paneque to discuss his

failure to make required installment payments of employment taxes. Her case

activity records state that Mr. Paneque complained then that he had requested a

payoff letter but that it had taken the IRS 10 months to comply.18

      During a May 15, 2007, meeting with RO Matthews, Mr. Paneque requested

a payoff figure that would be effective through May 31, 2007, for the employment

tax liabilities arising from the operations of JBDG Accounting, indicating that he



      17
      RO Matthews had been assigned responsibility to collect the unpaid
employment taxes of JBDG Accounting as early as August 2003.
      18
        The earliest request for a payoff letter established in the record is Mr.
Marsico’s request on June 13, 2006, which was satisfied on June 15, 2006--
approximately 8-1/2 months before Mr. Paneque’s complaint to RO Matthews. Mr.
Marsico attempted (unsuccessfully) to obtain another payoff letter (at Mr.
Paneque’s request) from Ms. Washington after she was no longer assigned to Mr.
Paneque’s OIC, in late June and early July 2006, or approximately 9 months before
Mr. Paneque’s complaint. Thereafter, Mr. Marsico had asked for and received
payoff information on two occasions in January and February 2007, as more fully
described above.
                                        - 15 -

[*15] planned to make a full payment of all of his outstanding tax liabilities. RO

Matthews visited Mr. Paneque’s business on June 6, only to find him away on

vacation. On June 11 Mr. Paneque called RO Matthews to advise that he hoped to

close on a bank loan later in the week so that he could pay his outstanding tax

liabilities. RO Matthews advised that she intended to levy on his assets if the

employment tax liabilities were not paid by July 6, 2007. RO Matthews’ case

activity records do not indicate that Mr. Paneque asked for a payoff amount or letter

at this time, and there is no other evidence that he did. Not having heard from Mr.

Paneque, RO Matthews called him on July 17 seeking payment of the employment

tax liabilities. Mr. Paneque then asked her for a payoff amount, and she advised

him that the full pay amount for the employment tax liabilities would be $93,456.01

as of July 26, 2007.

       On or about August 10, 2007, petitioners paid $491,132 in full satisfaction of

their outstanding income tax liabilities and employment tax liabilities. The record

does not reflect whether petitioners used cash on hand or borrowed funds to pay

these liabilities.
                                           - 16 -

[*16] Petitioners subsequently submitted to respondent requests for abatement of

interest.19 Respondent denied petitioners’ requests, and petitioners filed timely

petitions for review.

                                         OPINION

I.    Abatements of Interest--Section 6404

      Interest normally begins to accrue on a Federal tax liability from the last date

prescribed for payment of such tax and continues to accrue, compounding daily,

until payment is made. See secs. 6601(a), 6622. Because interest continues to

accrue until paid, interest may be assessed at any time during the period within

which the tax to which such interest relates may be collected. Sec. 6601(g).

      Congress has authorized the Secretary to abate an assessment of interest in

limited circumstances. Section 6404(e)(1) provides that, in the case of any

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

unreasonable error or delay by an officer or employee of the IRS, acting in an

official capacity, in performing a ministerial or managerial act, or (2) any payment

of any tax described in section 6212(a) to the extent that any delay in such

payment is attributable to such officer or employee being erroneous or dilatory in



      19
           Copies of petitioners’ requests for abatement of interest are not in the
record.
                                         - 17 -

[*17] performing a ministerial or managerial act, the Secretary may abate the

assessment of all or any part of such interest for any period.20 For purposes of

section 6404(e)(1), an error or delay may be taken into account only if no significant

aspect of such error or delay can be attributed to the taxpayer involved and after the

IRS has contacted the taxpayer in writing with respect to such deficiency or

payment.

      When the Secretary issues a notice of determination denying a taxpayer’s

request for abatement of interest under section 6404 and the taxpayer files a timely

petition for review, section 6404(h) vests the Court with jurisdiction to determine

whether the Secretary’s failure to abate interest was an abuse of discretion, and if

so, to order an abatement.21


      20
           Sec. 6404(e)(1) applies to interest accruing with respect to deficiencies or
payments for taxable years beginning after December 31, 1978. Tax Reform Act of
1986, Pub. L. No. 99-514, sec. 1563(b), 100 Stat. at 2762. In 1996 Congress
amended sec. 6404(e)(1)(A) and (B) to refer to “unreasonable” errors or delays in
performing “ministerial and managerial” acts. Taxpayer Bill of Rights 2, Pub. L.
No. 104-168, sec. 301(a), 110 Stat. at 1457. The amendments apply to interest
accruing on deficiencies or payments for taxable years beginning after July 30,
1996. See id. sec. 301(c). For taxable years beginning on or before July 30, 1996,
the Secretary may abate an assessment of interest under sec. 6404(e)(1) only when
it is attributable to an error or delay by an IRS officer or employee in performing a
“ministerial” act. See id.
      21
        Sec. 6404(h)(1) provides that the taxpayer must meet the net worth
requirements referred to in sec. 7430(c)(4)(A)(ii). Both petitions include allegations
                                                                         (continued...)
                                         - 18 -

[*18] The Court has often observed that Congress did not intend for the Secretary to

routinely exercise his authority to abate interest under section 6404(e) and that

interest abatement should be granted only “‘where failure to abate interest would be

widely perceived as grossly unfair’”. See, e.g., Krugman v. Commissioner, 112

T.C. 230, 238-239 (1999) (quoting H.R. Rept. No. 99-426, at 844 (1985), 1986-3

C.B. (Vol. 2) 1, 844; S. Rept. No. 99-313, at 208 (1986), 1986-3 C.B. (Vol. 3) 1,

208).

        To prevail under section 6404(e), the taxpayer must: (1) identify an error or

delay by the IRS in performing a ministerial or managerial act; (2) establish a

correlation between the error or delay by the IRS and a specific period for which

interest should be abated; and (3) show that he or she would have paid the tax

liability earlier but for such error or delay. See Hancock v. Commissioner, T.C.

Memo. 2012-31; Braun v. Commissioner, T.C. Memo. 2005-221. If these factors

are present, the taxpayer also must show that, in denying the taxpayer’s interest

abatement request, the Secretary abused his discretion (i.e., acted arbitrarily,


        21
         (...continued)
that petitioners meet the requirements of sec. 7430(c)(4)(A)(ii). Respondent’s
answers state that these allegations constitute legal conclusions to which no
response is required and, to the extent a response is required, respondent denies for
lack of knowledge or information. Respondent has not otherwise contested this
matter, and the Court concludes that petitioners satisfy the net worth test and have
properly invoked the Court’s jurisdiction.
                                         - 19 -

[*19] capriciously, or without sound basis in fact or law). Sec. 6404(h)(1); see

Allcorn v. Commissioner, 139 T.C. ___, ___ (slip op. at 8) (Aug. 9, 2012); Woodral

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

      A managerial act “means an administrative act that occurs during the

processing of a taxpayer’s case involving the temporary or permanent loss of

records or the exercise of judgment or discretion relating to management of

personnel.” Sec. 301.6404-2(b)(1), Proced. & Admin. Regs.22 However, a “general

administrative decision”, such as the IRS’ decision on how to organize the

processing of tax returns, is not a managerial act for which interest can be abated

under section 6404(e). Id.; see also sec. 301.6404-2(c), Examples (7) and (8),

Proced. & Admin. Regs.

      A 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




      22
         Sec. 301.6404-2, Proced. & Admin. Regs., generally is applicable to
interest accruing with respect to deficiencies or payments of any tax described in
sec. 6212(a) for taxable years beginning after July 30, 1996. The definition of a
“ministerial” act for taxable years beginning before August 1, 1996, is the same as
that set forth in the text. See sec. 301.6404-2T(b)(1), Temporary Proced. & Admin.
Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).
                                         - 20 -

[*20] conferences and review by supervisors, have taken place.” Sec. 301.6404-

2(b)(2), Proced. & Admin. Regs.

II.   Offers-in-Compromise

      Section 7122(a) permits the Secretary to compromise any civil case arising

under the internal revenue laws. Section 7122(d)(1) provides that the Secretary

shall prescribe guidelines for IRS officers and employees to determine whether an

OIC is adequate and should be accepted to resolve a dispute. See sec. 301.7122-1,

Proced. & Admin. Regs.; Rev. Proc. 2003-71, 2003-2 C.B. 517. An OIC based on

doubt as to collectibility generally will be considered acceptable “if it is unlikely

that the tax can be collected in full and the offer reasonably reflects the amount the

Service could collect [also referred to as reasonable collection potential] through

other means, including administrative and judicial collection remedies.” Rev. Proc.

2003-71, sec. 4.02, 2003-2 C.B. at 517; see sec. 301.7122-1(b)(2), Proced. &

Admin. Regs. The authority to reject an OIC generally has been delegated within

the Collection Division to numerous supervisory positions including the division

chief, branch chiefs, field branch chiefs, and group managers. Delegation Order No.

11 (Rev. 24), 59 Fed. Reg. 37130-37131 (July 20, 1994). While division chiefs and

branch chiefs may accept an OIC regardless of the amount of the underlying

liability, field branch chiefs and group managers (the latter acting
                                           - 21 -

[*21] pursuant to a redelegation of authority) may accept an OIC if the amount of

the liability is less than $100,000. Id.

III.   Abatement--Employment Tax

       Mr. Paneque contends that respondent abused his discretion in disallowing

his request for abatement of the interest that accrued on his unpaid employment tax

liabilities during the period October 21, 2005, through August 3, 2007. Respondent

contends that assessments of interest on employment tax liabilities are not eligible

for abatement under section 6404(e)(1). We agree.

       Respondent lacked authority to abate interest under section 6404(e), and his

failure to do so could not constitute an abuse of discretion. See Woodral v.

Commissioner, 112 T.C. at 25; see also Scanlon White, Inc. v. Commissioner, 472

F.3d 1173, 1177 (10th Cir. 2006), aff’g T.C. Memo. 2005-282; Miller v.

Commissioner, 310 F.3d 640, 645 (9th Cir. 2002), aff’g T.C. Memo. 2000-196.23

IV.    Abatement--Income Tax

       Petitioners contend that respondent abused his discretion in disallowing their

joint request for abatement of the interest that accrued on their unpaid income


       23
          Mr. Paneque has not contended that interest on the employment tax
liabilities in question should have been abated pursuant to sec. 6404(a), which
authorizes the Secretary to abate the unpaid portion of any assessment of any tax or
any liability that is excessive in amount, is not timely assessed, or is erroneously or
illegally assessed.
                                         - 22 -

[*22] tax liabilities during the period October 21, 2005, through August 3, 2007.

Petitioners assert that they experienced unreasonable delays in the processing of Mr.

Paneque’s OIC and in his obtaining a payoff letter from the IRS that he needed to

secure a bank loan to pay their income tax liabilities.

      A. Petitioners’ First Contention

      Petitioners contend that Ms. Washington caused an unreasonable delay in the

disposition of Mr. Paneque’s OIC because she failed to engage in any substantive

communications with Mr. Marsico between October 21, 2005, when the OIC was

assigned to her, and February 10, 2006, when she sent a letter to Mr. Marsico and

Mr. Paneque explaining that Mr. Paneque’s RCP of $373,952 far exceeded the

amount of his OIC. Petitioners also allege that Ms. Washington caused an

unreasonable delay by failing to obtain the financial records substantiating the

entries on Mr. Paneque’s Form 433-A and Form 433-B until early May 2006 when

Mr. Paneque increased the offer amount to match what she had determined to be his

RCP of $376,976. Finally, petitioners assert that in April 2006 Ms. Washington

inappropriately led them to believe that she would recommend that Mr. Paneque’s

OIC be accepted.

      We are not persuaded that Ms. Washington committed an error or was

dilatory in performing a ministerial or managerial act such that an abatement of
                                       - 23 -

[*23] interest would be justified. Although Ms. Washington was deliberate in the

processing of Mr. Paneque’s OIC, the chronology of events indicates that she was

engaged in a diligent and good-faith effort to properly evaluate Mr. Paneque’s OIC

and negotiate an appropriate compromise agreement with him.

      Contrary to petitioners’ assertion that the first substantive communication

from Ms. Washington was her letter of February 10, 2006, she advised Mr.

Marsico by telephone on December 13, 2005, that Mr. Paneque’s RCP far

exceeded the amount of his $30,000 OIC and that he was in any event not in

compliance with respect to his income tax obligations for 2004 and 2005 and his

employment tax obligations for 2005.24 Ms. Washington took approximately

seven weeks to complete her analysis and communicate to Mr. Paneque (in her

February 10, 2006, letter), that his RCP was $373,952--well in excess of his

$30,000 offer. Given the circumstances, including the fact that Mr. Paneque had

submitted a separate OIC for his joint income tax liabilities with Mrs. Paneque

(which required additional computations such as his proportionate share of the

couple’s household expenses), we are not persuaded that there was any

unreasonable delay in the processing of Mr. Paneque’s OIC between October 21,


      24
        That Ms. Washington raised compliance issues at this time is corroborated
by Mr. Paneque’s submission of a check to her two days later on December 15,
2005, to satisfy his 2004 income tax liability.
                                         - 24 -

[*24] 2005, and February 10, 2006. Shortly thereafter, Mr. Marsico challenged Ms.

Washington’s computations in several respects but indicated that Mr. Paneque

would increase the amount of his offer to $275,000. Two months later, in April

2006, Ms. Washington advised that her revised computations, taking into account

Mr. Marsico’s challenges, actually resulted in a slight increase in Mr. Paneque’s

RCP to $376,976. She further advised that she was prepared to recommend

acceptance of an OIC in that amount. On May 1, 2006, Mr. Paneque submitted to

Ms. Washington a revised OIC of $376,976.

      In sum, over a span of seven months, Mr. Paneque increased the amount of

his offer more than tenfold, which suggests that his initial offer was frivolously low.

We find no fault with Ms. Washington’s careful evaluation of what was an evolving

and complex OIC, submitted separately from that of a spouse with whom Mr.

Paneque had filed joint returns and shared a household.

      Petitioners also suggest that unreasonable delay occurred because Ms.

Washington did not request updated financial records substantiating what was

reported on Mr. Paneque’s Form 433-A and Form 433-B until May 4, 2006--after

she advised Mr. Paneque on April 14, 2006, that she would consider

recommending acceptance of his OIC if he raised it to $376,976 and he did just

that on May 1, 2006. Petitioners further contend that delay arose because Ms.
                                          - 25 -

[*25] Washington’s April 14 letter indicated that the OIC should be increased to

$376,976 by means of an amended Form 656, which caused petitioners to

reasonably believe, they contend, that their OIC in that amount would be

recommended for acceptance without further analysis.

       We see the circumstances differently. The consideration of Mr. Paneque’s

OIC consumed the first four months of 2006 because the amounts he offered

before May 1, 2006, fell substantially short of what Ms. Washington had

determined to be his RCP, a computation to which he ultimately acquiesced only

after substantial challenges thereto.25 Because Mr. Paneque persisted over four

months in pressing acceptance of amounts that were clearly inadequate, his

previously submitted financial substantiation became stale, and we cannot say Ms.

Washington acted unreasonably in postponing her request for updated

substantiation until Mr. Paneque indicated a willingness to revise his OIC to

conform to the RCP she had computed.26 Moreover, the fact that Ms. Washington


       25
         We note that petitioners also do not now dispute Ms. Washington’s
computation of Mr. Paneque’s RCP in this proceeding, and their payment of
$491,132 in full satisfaction of their outstanding tax liabilities a little over one year
later tends to support the accuracy of her computation.
       26
        Petitioners had submitted at least five OIC’s during 2004, four of which
were rejected and the fifth of which was disposed of in a manner not disclosed in
the record. Ms. Washington concluded that petitioners had a history of submitting
                                                                        (continued...)
                                        - 26 -

[*26] then found significant discrepancies between the bank records covering the

first part of 2006 and the information that had been reported on Mr. Paneque’s Form

433-A and Form 433-B extinguishes any argument that petitioners had a reasonable

expectation that Mr. Paneque’s amended OIC would be promptly processed for

acceptance in May 2006. We cannot say that Ms. Washington acted unreasonably

in determining that the OIC required further investigation after she uncovered these

discrepancies.

      B. Petitioners’ Second Contention

      Petitioners also assert that they experienced an unreasonable delay in the

processing of Mr. Paneque’s OIC after the IRS closed Ms. Washington’s OIC unit

in New Jersey and reassigned Mr. Paneque’s OIC to an IRS unit in Nashville,

Tennessee.

      Ms. Washington’s last substantive activity with regard to Mr. Paneque’s OIC

occurred in late May 2006 when she analyzed Mr. Paneque’s bank statements for

the first part of 2006 and found discrepancies with his previous disclosures.



      26
        (...continued)
frivolous OICs in an effort to thwart collection. We do not find her conclusion
unreasonable in the circumstances. Given petitioners’ OIC history, we likewise do
not find it unreasonable that Ms. Washington first required that Mr. Paneque revise
his OIC to match his RCP before she invested significant time analyzing the
substantiation of his reported financial circumstances.
                                        - 27 -

[*27] Mr. Marsico received formal notification of the reassignment and, for the first

time, a new contact person for Mr. Paneque’s OIC on September 5, 2006. On

September 29, 2006, the OIC was assigned to Ms. Fiske. Thus, the IRS performed

no substantive work on Mr. Paneque’s OIC from May 26 until September 29, 2006.

      Relying on section 301.6404-2(b)(1), Proced. & Admin. Regs., respondent

contends that any delay in the processing of Mr. Paneque’s OIC during the

approximately four months from late May until late September 2006 was

attributable to a general administrative decision--namely, the decision to transfer

OIC review functions from New Jersey to Tennessee--for which interest may not be

abated. We agree.27

      The decision to transfer the review of OICs from New Jersey to Tennessee

was a systemic modification of the manner in which the IRS processed proposed

compromises of liabilities. Given the decision’s systemic nature, it was a general

administrative decision as defined in the regulations, akin to section 301.6404-2(c),

Examples (7) and (8), Proced. & Admin. Regs. (decisions concerning how to




      27
        Petitioners have not challenged the validity of sec. 301.6404-2(b)(1),
Proced. & Admin. Regs., insofar as it defines the statutory term “managerial act” to
exclude a “general administrative decision”. We accordingly apply the regulation as
promulgated.
                                        - 28 -

[*28] organize and prioritize the processing of returns are general administrative

decisions). The reassignment of Mr. Paneque’s OIC from Ms. Washington to Ms.

Fiske was thus not a managerial decision concerning the assignment of individual

IRS employees to specific tasks (as in section 301.6404-2(c), Examples (3), (4), and

(5), Proced. & Admin. Regs.) but instead resulted from a general administrative

decision. Consequently, the delay in processing Mr. Paneque’s OIC from May 26

until September 29, 2006, does not qualify petitioners for an abatement of interest

under section 6404(e) and the applicable regulations.28

      As for the remaining period during which Mr. Paneque’s OIC was under

consideration--from the assignment to Ms. Fiske on September 29, 2006, until Mr.

Marsico’s receipt of the formal rejection on March 5, 2007--we perceive no

unreasonable delay in the processing of the OIC. Under applicable statutory and

administrative procedures, three levels of review of the OIC were required. As an

offer specialist, Ms. Fiske lacked authority to reject Mr. Paneque’s OIC. She could

merely recommend rejection to her group manager, who had such authority.




      28
          The same holds true for the interest attributable to petitioners’ income tax
liabilities for their taxable years 1994, 1995, and 1996; that is, years for which
abatement was authorized only for delays arising from ministerial (but not
managerial) acts. The decision to change the location for processing Mr. Paneque’s
OIC was obviously not a ministerial act under the applicable regulations.
                                        - 29 -

[*29] See Delegation Order No. 11 (Rev. 24). She did so less than a week after

being assigned the OIC. Her group manager formally concurred approximately 60

days later, on December 7, 2006. Further, section 7122(e) requires an independent

administrative review of any rejection of an OIC before the rejection is

communicated to the taxpayer. Mr. Paneque’s OIC was subject to independent

administrative review from December 7, 2006, until February 12, 2007, when the

reviewer concurred in the rejection determination.29 Petitioners received formal

notification of the rejection on March 5, 2007.

      At most, petitioners’ complaint with respect to the foregoing period is that

Ms. Fiske advised them that they would receive a rejection letter by October 6,

2006. On the basis of the administrative record as a whole, we are satisfied that

Ms. Fiske instead explained to Mr. Marsico that she would process her

recommendation to reject by that time, which she did. The remaining processing

time reflected procedures for statutorily mandated levels of review. We perceive no

unreasonable delay; much less that any failure to abate interest for this period


      29
        Petitioners complain that Mr. Paneque repeatedly sought, to no avail, to
have his OIC rejected so that he could appeal the rejection, suggesting that
respondent’s failure to promptly issue a rejection letter to expedite the appeal
contributed to delay. Petitioners have cited no authority for the proposition that a
taxpayer may bypass pre-Appeals consideration of an OIC in this manner, and we
are aware of none.
                                          - 30 -

[*30] “‘would be widely perceived as grossly unfair.’” Krugman v. Commissioner,

112 T.C. at 238-239 (quoting H.R. Rept. No. 94-426, supra at 844; S. Rept. No. 99-

313, supra at 208).30

       C. Petitioners’ Third Contention

       Petitioners’ final contention is that, despite numerous requests over several

months, respondent failed to provide Mr. Paneque with a payoff letter in a timely

fashion, which led to an unnecessary accrual of additional interest on petitioners’

unpaid tax liabilities.

       We have held that the Commissioner’s providing an incorrect payoff figure is

a ministerial act that may give rise to an abatement of interest under section

6404(e). Douponce v. Commissioner, T.C. Memo. 1999-398. We accordingly

assume for purposes of deciding these cases that a failure by the Commissioner to

provide payoff information when properly requested may constitute a ministerial

act for purposes of section 6404(e). As discussed below, however, we conclude


       30
         Although it is not controlling in this case, we note that sec. 7122(f), added
to the Internal Revenue Code as part of the Tax Increase Prevention and
Reconciliation Act of 2005 (TIPRA), Pub. L. No. 109-222, sec. 509(b)(2), 120 Stat.
at 363, provides that an OIC shall be deemed to be accepted by the Secretary if such
offer is not rejected by the Secretary before the date which is 24 months after the
date of submission of such offer. Sec. 7122(f) is effective for OICs submitted on or
after July 16, 2006. TIPRA, sec. 509(d), 120 Stat. at 364. Mr. Paneque’s OIC was
rejected just over 17 months after the date it was submitted.
                                        - 31 -

[*31] that petitioners have not established that there was any failure by respondent

to provide a payoff figure that resulted in a delayed payment of tax that would

otherwise have been paid sooner. See Wright v. Commissioner, T.C. Memo. 2004-

69, aff’d, 125 Fed. Appx. 547 (5th Cir. 2005); Harbaugh v. Commissioner, T.C.

Memo. 2003-316.

      The only evidence petitioners cite in support of their claim that respondent

failed to respond to repeated requests for a payoff letter over several months is Mr.

Paneque’s vague and self-serving testimony to that effect.31 The record in these

cases is sketchy. We have reconstructed events to the extent possible from the case

activity records of various IRS personnel, the case notes of Mr. Marsico, and often

vague trial testimony. Our careful review of the foregoing persuades us that the

circumstances surrounding Mr. Paneque’s various requests for payoff information

are more complicated than petitioners claim in this proceeding, and they do not

establish that there was any unreasonable delay in providing payoff information that

prevented them from paying tax liabilities any sooner than would otherwise have

been the case.




      31
       Petitioners in addition point to the fact that RO Matthews recorded Mr.
Paneque’s complaint to that effect in her case activity records. We conclude that
Mr. Paneque’s claims made to RO Matthews are unreliable. See supra note 18.
                                         - 32 -

[*32] The first request for a payoff letter established in the record was Mr.

Marsico’s oral request to Ms. Washington on June 13, 2006. Mr. Marsico’s own

case notes record that he received a payoff letter on June 15, 2006. Petitioners did

not pay any portion of their outstanding tax liabilities at or around this time.

      The second request for a payoff letter established in the record occurred on

June 27, 2006, when Mr. Marsico telephoned Ms. Washington and left a message

requesting a payoff letter through July 7, 2006. He left a second message to similar

effect on July 11, 2006. Although Ms. Washington returned neither call, the calls

were made after Ms. Washington had advised Mr. Marsico (twice) that she was no

longer assigned to Mr. Paneque’s OIC. Thus, to the extent any delay was caused by

Ms. Washington’s failure to respond in June and July of 2006, it is attributable to

the general administrative decision to transfer OIC review functions from New

Jersey to Tennessee. We also note that Mr. Marsico had other avenues for

requesting payoff information. See IRS Publ’n 1468. Moreover, Mr. Paneque

advised Mr. Marsico on July 11, 2006, that he was unable to pay his outstanding

liabilities in full at that time. See Wright v. Commissioner, T.C. Memo. 2004-69.

Accordingly, any purported failure of respondent to provide payoff information on

or about July 11, 2006, did not cause any delay in petitioners’ payment of their

outstanding tax liabilities and/or was not eligible for interest abatement.
                                        - 33 -

[*33] The third request for a payoff letter established in the record arose on January

4, 2007, when Mr. Marsico called Ms. Fiske’s office to request one but was advised

that she would be out of the office until January 23, 2007. Instead of exploring

other sources for payoff information within the IRS at that time, Mr. Marsico on

January 6 filed a request for Taxpayer Advocate assistance, complaining of the

failure to receive a rejection letter with respect to Mr. Paneque’s OIC (and not the

failure to receive payoff information). When Ms. Fiske returned on January 23, Mr.

Marsico requested payoff information. Ms. Fiske advised that she had requested

transcripts with payoff information. The transcripts were apparently received the

next day, because her case activity notes record that she and Mr. Marsico discussed

the transcripts by phone on January 24; that Mr. Marsico identified a lender that

required a payoff letter before making a loan to Mr. Paneque; and that she advised

Mr. Marsico of an IRS telephone number to use for purposes of third-party requests

for payoff information. The record is silent with respect to what efforts Mr.

Marsico made to use this contact information. Considered as a whole, we conclude

that this January 2007 sequence does not establish a failure by respondent to

provide payoff information.

      The fourth request for a payoff letter established in the record occurred on

February 16, 2007, when Mr. Paneque sought unsuccessfully to obtain a payoff
                                        - 34 -

[*34] letter from an IRS field office. On February 19, Mr. Marsico sought Ms.

Fiske’s assistance. Ms. Fiske apparently responded, because Mr. Marsico’s case

notes record that he and Mr. Paneque met on February 26 to discuss an IRS fax that

contained payoff information. Mr. Marsico’s notes further reveal that Mr. Paneque

was to determine whether his lender would accept this information, but the record is

silent with respect to any further developments. We conclude that the February

2007 events do not establish a failure by the IRS to provide payoff information.

      Finally, the record establishes that on two occasions--May 15, 2007, and July

17, 2007--Mr. Paneque requested payoff amounts from RO Matthews for the

employment tax liabilities arising from the operations of JBDG Accounting. The

disposition of the first request is unclear from the record, while the second request

was promptly satisfied at least orally. In any event, petitioners have not established

that there was any failure to satisfy an employment tax payoff letter request that

caused a delay in their payment of income tax.

      In short, the record reflects that Mr. Paneque or his counsel made several

requests for payoff letters or information during 2006 and 2007. But it is not the

case, as petitioners contend, that respondent never provided payoff information

over this period despite repeated requests. Respondent complied outright in one
                                          - 35 -

[*35] instance and cooperated in important respects in others, and in others the

record is too sketchy to support a finding that respondent failed to timely satisfy a

request for a payoff letter or its substantial equivalent. As it is petitioners’ burden

to establish a delay in the performance of a ministerial act that resulted in their

making a payment of tax later than they otherwise would have, we conclude that

respondent did not abuse his discretion in failing to abate any interest attributable

to petitioners’ claim concerning payoff letters.

      To reflect the foregoing,

                                                   Decisions will be entered for

                                         respondent.
