                        T.C. Memo. 2004-277



                      UNITED STATES TAX COURT



                  LINDA MITCHELL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17155-02.            Filed December 8, 2004.


     Linda Mitchell, pro se.

     Michael W. Lloyd, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined that petitioner is not

entitled to abatement of the interest due with respect to her

income tax liability for 1994 pursuant to section 6404(e).1    The

only issue for decision is whether respondent abused his


     1
        Unless otherwise indicated, section references are to the
Internal Revenue Code, as amended. Amounts are rounded to the
nearest dollar.
                               - 2 -

discretion in failing to abate the assessment of interest with

respect to petitioner’s 1994 tax year.

                         FINDINGS OF FACT

     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.   On the date the petition

was filed, petitioner resided in Aurora, Colorado.

     Petitioner is a tax return preparer and has prepared tax

returns since 1990.

     Petitioner and her spouse, Hamidou Diarra (Mr. Diarra),

timely filed a 1994 Federal income tax return with a filing

status of “Married filing joint return.”    On February 26, 1997,

respondent issued a notice of deficiency for 1994 determining a

deficiency of $8,919 and an accuracy-related penalty under

section 6662(a) of $1,784.   Petitioner filed a petition with the

Court disputing the notice of deficiency.   Respondent assessed

the deficiency on Mr. Diarra using nonmaster file procedures

because Mr. Diarra did not petition the Court.2

     During the course of the trial, the parties reached a

settlement.   Respondent recited the terms of the settlement on


     2
        Nonmaster file accounts are created as a routine matter
when an action is taken that affects only one spouse on an
account that originally is on a master file jointly; i.e., only
one spouse petitions the Court. 4 Administration, Internal
Revenue Manual (CCH), secs. 8.17.3.1.5 and 8.17.3.1.6 at 27,802
and 27,803.
                                   - 3 -

the record.   The Court specifically asked petitioner whether she

agreed to settle the case on the recited basis, and petitioner

agreed as follows:

          MR. LOPATA [Respondent’s counsel]: Good morning, Your
     Honor. I’m happy to say that we have reached a basis of
     settlement in this case, and we would like to read that
     basis into the record at this time.

          THE COURT: That’s fine. After you do that, I’ll -–
     Ms. Mitchell, I’ll ask you if you agree to settle the case
     on the basis that he has stated.

           MS. MITCHELL:     All right.

                       *      *    *       *   *   *

          MR. LOPATA: * * * I believe that summarizes our basis
     for settlement of this case, Your Honor.

          THE COURT:       That covers all the issues that have been
     in dispute?

           MR. LOPATA:     I believe so, Your Honor.

          THE COURT: Ms. Mitchell, do you agree to settle the
     case on that basis?

           MS. MITCHELL:     Yes, I do.

The Court ordered that the parties provide the Court with a

decision document reflecting the settlement by May 21, 1998.

     Petitioner and respondent met in early June 1998, to review

the settlement computations.      After petitioner failed to return

the decision document to respondent, respondent called petitioner

on September 9, 1998, to arrange a meeting for September 14,

1998.   At the meeting, petitioner refused to sign the stipulation

and decision documents even though petitioner agreed that the
                                - 4 -

computations and decision document accurately reflected the

settlement agreed to at the trial.      Petitioner indicated that she

was dissatisfied with the settlement and wished to reopen the

negotiations and present additional information in an attempt to

reach a more beneficial settlement.

     On September 22, 1998, respondent filed a motion for entry

of decision with the Court.    Petitioner did not file an objection

to the motion.   On November 4, 1998, the Court entered an order

and decision that, as relevant in this case, there was a

deficiency of $7,269 and a penalty due pursuant to section

6662(a) of $1,454, for 1994.

     On February 19, 1999, respondent assessed the deficiency and

penalty using nonmaster file procedures for petitioner’s account

and adjusted Mr. Diarra’s nonmaster file account to be in line

with petitioner’s deficiency and penalty.     Respondent sent

petitioner and Mr. Diarra notices reflecting these account

adjustments.

     On April 5, 1999, respondent sent petitioner a fourth notice

demanding payment of the outstanding tax, penalty, and interest.

     On May 3, 1999, petitioner paid $4,944 toward the 1994

deficiency and penalty.   On May 5, 1999, the account was turned

over to respondent’s collection branch for active enforcement of

collection procedures because it was a delinquent account without

a formalized installment agreement.
                               - 5 -

     On August 10, 1999, respondent determined petitioner and Mr.

Diarra’s account to be “currently-not-collectible” (53 status),

suspending the enforced collection.    While a case is in 53

status, respondent sends a bill to the taxpayer once a year with

the balance on the master and nonmaster file accounts.

     On April 15, 2001, and 2002, respondent applied petitioner’s

overpayments of $179 and $329 on her 2000 and 2001 tax returns,

respectively, to the 1994 tax deficiency and penalty.    On March

18, 2002, petitioner made a payment of $2,146 to the 1994 tax

deficiency and penalty.

     On November 12, 2001, respondent received from petitioner a

Form 843, Claim for Refund and Request for Abatement, in which

she requested that all accrued interest on the 1994 deficiency be

abated.   Petitioner provided the following explanation as to why

she believed the claim should be allowed:

     We are asking that this claim be allowed because the amount
     owed is for interest and penalty that was the result of an
     audit from 1995. After paying the tax obligation, we did
     not realize that interest and penalty were accruing.

     I contacted the Internal Revenue Service on several
     occasions and was told that there was nothing outstanding
     for tax year 1994. A reminder notice dated 08/20/2001 * * *
     was received and we responded accordingly. After receiving
     a reminder notice * * * dated September 3, 2001, I called
     the Taxpayer Advocates [sic] office. The representative
     explained to me why we received the reminder notices.
     However, he said that our obligation was paid in full for
     tax year 1994. The notice was for interest and penalty
     only.

     We have always had financial problems, but lately, we are
     having serious financial problems. We are over extended as
                              - 6 -

     a result of borrowing money to pay 1992, 1993 and 1994 tax
     obligations. There were other loans made for various
     reasons which has causes [sic] us not to qualify for
     additional credit.

     As explained above, please abatement [sic] the interest and
     penalty for tax year 1994. We do not have the ability to
     pay. Bottom line, we are struggling financially.

     We are responsible individuals and would like to have our
     income tax records free and clear of outstanding
     obligations.

     On March 7, 2002, respondent sent petitioner and Mr. Diarra

a letter that their claim was fully disallowed.   The letter

stated:

     The information you provided does not establish that any
     interest is due to an error or unreasonable delay relating
     to the performance of a ministerial act by an officer or
     employee of the Internal Revenue Service.

     A review of our records shows that an examination assessment
     was made on your 1994 tax account. A letter was sent
     advising you of your legal rights to petition the United
     States Tax Court if you disagreed with our tax change. Our
     records show that Linda Mitchell petitioned the tax court,
     but we have no record that Hamidou Diarra chose to petition.

     The IRS has a legal period in which to charge additional tax
     on your Form 1040. To protect our assessment against
     Hamidou Diarra, we made the assessment against him only on
     June 16, 1997. The legal period to assess against Linda
     Mitchell was extended while waiting for the tax court
     decision. Because the court decision resulted in a smaller
     amount of tax and penalty charges, we reduced the charges
     against Hamidou Diarra (as shown in our notice of adjustment
     dated February 11, 1999), to equal the same tax and penalty
     charges of $8,723.00 assessed against Linda Mitchell on
     February 19, 1999. Separate notices are issued because of
     the separate accounts. However, we will only collect the
     assessment of $8,723 [1994 deficiency of $7,269 plus penalty
     of $1,454] once (plus applicable penalty and interest
     charges).
                              - 7 -

     On October 7, 2002, respondent issued to petitioner a Full

Disallowance-Final Determination, disallowing petitioner’s

request for an abatement of interest.    Respondent denied the

request on the basis of the following:

     We did not find any errors or delays relating to the
     performance of a ministerial act by an IRS employee. The
     law allows for possible interest abatement only when there
     is an error or delay caused by an IRS employee in performing
     a ministerial act, which is defined as a procedural or
     mechanical act that does not involve the exercise of
     judgment or discretion. In your claim and in your appeal
     letter, you requested abatement of all the assessed interest
     on the 1994 tax account. You did not contend that there was
     any error or delay by the IRS in the process of assessing
     the additional tax liability on the 1994 tax account. You
     simply stated that you thought you had full paid the amount
     of additional tax liability due, and that once the tax
     liability was paid, you understood that the assessed
     interest amount could be negotiated for abatement. You then
     explained that you have financial problems and requested
     that the assessed interest be abated due to your inability
     to pay. However, a review of the requirements of the law
     [IRC section 6404(e)] reveals that interest assessed on the
     tax account cannot be abated unless the specific
     requirements of the law are met. There is no provision in
     this law to negotiate the amount of interest due required by
     the law or to consider reasons of ‘inability to pay’.
     Therefore, your claim for interest abatement cannot be
     allowed.

On October 28, 2002, petitioner filed a Petition for Review of

Failure to Abate Interest Under Code Section 6404 with the Court

disputing respondent’s determination.

                             OPINION

     Section 6404(e)(1) provides that the Commissioner may abate

the assessment of interest on payment of tax to the extent a

delay in such payment is attributable to any error or delay by an
                               - 8 -

officer or employee of the Internal Revenue Service in performing

a ministerial act.3   Section 301.6404-2(b)(2), Proced. & Admin.

Regs.,4 defines a “ministerial act” as:

     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.

The Court may order abatement if the Commissioner abuses his

discretion by failing to abate interest.   Sec. 6404(h)(1).5


     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
        The quoted language from sec. 301.6404-2(b)(2), Proced. &
Admin. Regs., is identical to the language of sec. 301.6404-
2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163
(Aug. 13, 1987), which was in effect for 1994. Sec. 6232(a) of
the Technical and Miscellaneous Revenue Act of 1988 (TAMRA 1988),
Pub. L. 100-647, 102 Stat. 3734, added subsec. (e) to sec. 7805.
Sec. 7805(e)(2) provides that "Any temporary regulation shall
expire within 3 years after the date of issuance of such
regulation." Sec. 7805(e)(2) applies to any temporary regulation
issued after Nov. 20, 1988. TAMRA 1988 sec. 6232(b), 102 Stat.
3735. The regulation herein involved was issued before Nov. 20,
1988, and thus the "sunset" provision of sec. 7805(e)(2) does not
apply to this regulation. In order to avoid confusion, we refer
to this regulation using its current designation, sec. 301.6404-
2(b)(2), Proced. & Admin. Regs.
     5
        Formerly, sec. 6404(g), applicable to requests for
abatement after July 30, 1996. TBOR 2 sec. 302, 110 Stat. 1457
(1996).
                                - 9 -

     Petitioner presents in her claim alternative arguments as to

why interest on the 1994 tax deficiency should be abated.     These

arguments are lack of knowledge that interest was accruing and

inability to pay.    Petitioner’s arguments fail on the basis of

the record.

Lack of Knowledge

     Petitioner argues that she thought that she needed to pay

only the deficiency and penalty determined in the decision

document and that she did not know to look at her nonmaster file

account to know that there was interest assessed.    Interest on a

Federal income tax liability generally begins to accrue from the

last date prescribed for payment of that tax and continues to

accrue, compounding daily, until payment is made.    See secs.

6601(a), 6622(a).    Petitioner, a tax return preparer by

profession, admitted at trial that she knew that interest accrues

on unpaid taxes.    Therefore, petitioner’s lack-of-knowledge

argument must fail.

      Petitioner’s nonmaster file transcript reports that

petitioner received four notices regarding the balances in her

account, including accrued interest.    The Appeals officer

testified that, even when petitioner’s account was in 53 status,

petitioner would have still received an annual notice reflecting

the 1994 balance due.    Petitioner’s claim that she had no

knowledge of the accrued interest fails on the basis of the
                              - 10 -

evidence on the record and does not constitute an error or delay

caused by respondent in performing a ministerial act.

Inability To Pay

     Petitioner also argues that she is struggling financially

and unable to pay the accrued interest.    First, the taxpayer’s

inability to pay is not a condition that would allow the

Secretary to abate the interest assessment as it does not involve

a ministerial act of respondent.   See sec. 6404(e); sec.

301.6404-2(b)(2), Proced. & Admin. Regs.    Second, at trial,

petitioner contradicted herself by disputing the alleged

inability to pay and questioned why her account was placed in 53

status because she had been paying off the 1994 deficiency and

penalty; we can infer from her questioning that she does have the

ability to pay.6   We interpret petitioner’s argument to arise out

of her confusion as to respondent’s classification of her account

with 53 status.

     An account may be placed in 53 status for a variety of

reasons.   See 2 Administration, Internal Revenue Manual (CCH),

sec. 5.16.1.1 at 17,803.   At trial, the Appeals officer testified

that it appeared that petitioner’s account was reported as 53




     6
        At trial, petitioner testified to the following: “I
demonstrated an ability to pay when I paid the other prior
things, the prior bills in the order and decision from the
Court.”
                               - 11 -

status because the collection branch did not have the manpower to

pursue actively the amounts.

     We note that once an account is placed in 53 status, the

Commissioner is required to advise the taxpayer:   (1) If the

taxpayer’s financial condition changes, payment of the tax may be

warranted; (2) any refunds on future Federal tax returns will be

applied to the outstanding liability; (3) interest and penalty

will continue to accrue on the account; and (4) an annual notice

will be sent reminding the taxpayer of the balance due.    2

Adminstration, Internal Revenue Manual (CCH), sec. 5.19.1.6.1.7

at 18,299-119.   We further note that the period of limitations

for collection has not expired.   See sec. 6502(a).   Although

respondent reported petitioner’s account as 53 status, respondent

is still able to collect the balance from petitioner.

     There is no evidence that the accrual of interest was

attributable to respondent’s error or delay in performing a

ministerial act.   The fact is that petitioner is not entitled to

abatement of the interest because petitioner caused the delay by

not paying the full amount when due.    As a result, we hold that

respondent did not abuse his discretion in failing to abate the

assessment of interest.
                             - 12 -

     In reaching our decision, we have considered all arguments

made, and, to the extent not mentioned above, we conclude that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,

                                               Decision will be

                                        entered for respondent.
