                        T.C. Memo. 2000-45



                      UNITED STATES TAX COURT



   RICHARD DUNDORE AND VIRGINIA D'ANNA-DUNDORE, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent


     Docket No. 10934-98.                Filed February 10, 2000.


     Richard Dundore, for petitioners.

     Michael D. Zima, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge D. Irvin Couvillion pursuant to Rules 180, 181, and 183.1

The Court agrees with and adopts the opinion of the Special Trial

Judge, which is set forth below.




     1
          All Rule references are to the Tax Court Rules of
Practice and Procedure.
                                - 2 -


                  OPINION OF THE SPECIAL TRIAL JUDGE

     COUVILLION, Special Trial Judge:    Respondent issued a notice

of final determination denying petitioners’ claim to abate

interest for their 1989 and 1990 tax years.    Petitioners filed a

timely petition for review of that determination with this Court.

The sole issue for decision is whether petitioners are entitled

to an abatement of interest pursuant to section 6404(e).2

     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’ legal

residence at the time the petition was filed was Cape Coral,

Florida.

     Petitioners filed their 1989 and 1990 Federal income tax

returns timely.    The Internal Revenue Service (IRS) thereafter

commenced an examination of petitioners’ 1989 and 1990 returns.

Despite several attempts by an IRS agent to meet with petitioners

with respect to their returns, petitioners ignored the requests.

Petitioners were then issued a revenue agent’s report, which they

also ignored, and that was followed by issuance of a notice of

deficiency.   In that notice, respondent determined deficiencies

of $32,910 and $48,326 and accuracy-related penalties under

section 6662(a) of $6,582 and $9,665, respectively, for


     2
          Unless otherwise indicated, all section references are
to the Internal Revenue Code in effect for the periods involved.
                                - 3 -


petitioners’ 1989 and 1990 tax years.    Respondent determined that

petitioners had substantial amounts of unreported income for both

1989 and 1990 as a result of respondent's shifting income from

their closely held business entities to petitioners personally.

Respondent also disallowed two dependency exemptions for 1989 and

1990, as well as all of petitioners' claimed itemized deductions,

rental expenses, and depreciation deductions for 1989 and 1990

for lack of substantiation.    Additionally, respondent determined

that petitioners were liable for self-employment taxes and

asserted an accuracy-related penalty under section 6662(b)(1).

     Petitioners filed a petition on May 28, 1993, challenging

respondent's determinations.   The case was assigned docket No.

10789-93.   Respondent thereafter filed an answer.

     After the case was docketed, the IRS Appeals Office at

Miami, Florida, on July 6, 1993, contacted petitioners by letter

and advised that they would soon be contacted by an Appeals

officer for a conference.    That letter suggested to petitioners

that they contact the Appeals Office either in writing or by

telephone if they had any questions concerning their case.

Petitioners did not respond to this letter.   On November 30,

1993, an Appeals officer contacted petitioners by letter and

suggested a meeting on January 24, 1994, at Ft. Myers, Florida,

where petitioners resided.    Petitioners responded to this letter

on December 24, 1993, agreeing to the meeting with the Appeals
                                - 4 -


officer.   The January 24, 1994, meeting was held, and the parties

discussed petitioners' case.   The Appeals officer described to

petitioners the nature of respondent’s determinations.

Petitioners explained their position in the matter and produced a

small amount of evidence to support their arguments.   The Appeals

officer was not satisfied that petitioners had proven any error

in respondent’s determinations but indicated that he would review

the matter and send petitioners a list of evidence they needed to

produce to overcome respondent’s determinations.

     Nothing else transpired until July 5, 1994, when another

Appeals officer advised petitioners by letter that the case had

been reassigned to him because of workload considerations,

suggested a meeting at the Appeals Office at Ft. Lauderdale

possibly to settle the case, and provided his assessment of

petitioners' case.   Petitioners responded that they could not

meet on the suggested date and proposed a meeting at Ft. Myers,

Florida, in September 1994.    The Appeals officer responded that

he was not going to Ft. Myers until late October and suggested

petitioners come to his Ft. Lauderdale office in late September

or October 1994 to attempt settlement.

     In the meantime, on August 5, 1994, the IRS office of

District Counsel advised petitioners by letter that their case

was calendared for trial at this Court’s trial session at Miami,

Florida, commencing December 5, 1994, and it was necessary that
                               - 5 -


the parties prepare stipulations for trial, as required by this

Court’s Rules of Practice and Procedure.    The IRS attorney

suggested that the parties meet or otherwise correspond by mail

or telephone.   Petitioners provided some of the information

respondent’s counsel had requested.    Counsel telephoned

petitioners for the additional information and suggested that

they meet with an IRS agent near their home and, if necessary,

counsel was available for a conference call during such a

meeting.   Petitioners did not comply with this request.    The IRS

counsel then prepared a proposed stipulation of facts that was

forwarded to petitioners along with a request for production of

documents.   Petitioners thereafter met with an IRS agent on

October 3, 1994, and presented their case according to the

suggestions in the Appeals Officer's July 5 letter.    As a result

of the meeting, the Appeals officer was satisfied that some of

the shifted items of income were properly allocable to

petitioners’ closely held business entities and not to

petitioners personally.   Further, the Appeals officer determined

that petitioners were entitled to many of the claimed itemized

deductions, rental expenses, and depreciation deductions.

However, the Appeals officer was satisfied that respondent’s

remaining determinations were proper.    Accordingly, the Appeals

officer made petitioners a settlement offer proposing that

respondent’s determinations be adjusted to reflect deficiencies
                                 - 6 -


and accuracy-related penalties of $40,165 rather than the $97,483

shown in the notice of deficiency.       Petitioners, by letter,

declined to accept the settlement proposal and explained that,

while they agreed with some of respondent’s adjustments, they

still did not agree with many of the proposed adjustments.

     The Appeals Office then advised petitioners that the case

could not be settled and was being forwarded to respondent’s

counsel for trial preparation.    Because petitioners had not

signed the proposed fact stipulations and had not responded to

the request for documents, counsel for respondent filed a motion

and obtained an order that compelled petitioners to produce the

requested documents and show cause why the proposed stipulations

should not be accepted.   Petitioners thereafter filed a motion

for continuance, which was granted.       Petitioners then employed an

attorney who entered the case, and, over the next few months, the

parties could not agree on settlement.       The case was again

calendared for trial on December 4, 1995, and, on that date, a

basis for settlement was reached.    A decision entered on December

20, 1995, provided that petitioners were liable for income tax

deficiencies of $10,599 and $9,851 and penalties under section

6662(a) of $2,119.60 and $1,970.20, respectively, for 1989 and

1990.   The decision was entered on December 20, 1995.

Petitioners thereafter filed claims for abatement of interest on

the deficiencies for both years, commencing from the date they
                                 - 7 -


were first contacted by an IRS agent for the audit of their 1989

and 1990 returns, July 8, 1992, to the date the deficiencies were

assessed, March 11, 1996.   The Commissioner denied petitioners’

claims.   At trial, petitioners narrowed their request for

abatement to the period between July 6, 1993, the date when they

were first contacted by the IRS Appeals Office, to December 20,

1995, the date the decision was entered.

     The Commissioner's authority to abate an assessment of

interest involves the exercise of discretion, and this Court

gives due deference to the Commissioner's discretion.    See

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

Commissioner, 91 T.C. 1079, 1082 (1988).    However, this Court may

order abatement where the Commissioner abuses his discretion.

See sec. 6404(g);3 Woodral v. Commissioner, supra.

     Pursuant to section 6404(e)(1), the Commissioner may abate

part or all of an assessment of interest on any deficiency or

payment of income tax to the extent that any delay in payment is

attributable to any error or delay caused by an officer or

employee of the IRS (acting in an official capacity) in

performing a ministerial act.4    However, an error or delay is


     3
          Sec. 6404(g) was redesignated sec. 6404(i) by the
Internal Revenue Service Restructuring & Reform Act of 1998, Pub.
L. 105-206, secs. 3305(a), 3309(a), 112 Stat. 743, 745.
     4
           In 1996, sec. 6404(e) was amended by sec. 301 of the
                                                    (continued...)
                              - 8 -


taken into account only if it occurs after the IRS has contacted

the taxpayer in writing with respect to such deficiency or

payment, and as long as no significant aspect of such error or

delay can be attributed to the taxpayer.   See sec. 6404(e)(1).

Congress intended the Commissioner to abate interest under

section 6404(e) "where failure to abate interest would be widely

perceived as grossly unfair" but not that it "be used to

routinely avoid payment of interest."   H. Rept. 99-426, at 844

(1985), 1986-3 C.B. (Vol. 2) 844; S. Rept. 99-313, at 208 (1985),

1986-3 C.B. (Vol. 3) 208.

     Petitioners claim that the delay in the consideration of

their case was due to error or delay by employees of IRS, acting

in their official capacity, in performing various ministerial

acts.

     The regulations provide, in pertinent part, that the term

"ministerial act" means a procedural or mechanical act that does

not involve the exercise of judgment or discretion.   See sec.

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


     4
      (...continued)
Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457
(1996), to permit the Secretary to abate interest attributable to
an unreasonable error or delay resulting from managerial and
ministerial acts. This amendment, however, applies to interest
accruing with respect to deficiencies or payments for tax years
beginning after July 30, 1996. This case involves petitioners'
1989 and 1990 tax years. Therefore, the amendment is
inapplicable to the case at bar. See Woodral v. Commissioner,
112 T.C. 19, 25 n.8 (1999).
                               - 9 -


30163 (Aug. 13, 1987).5   The regulations issued by the Secretary

provide several examples of what does and does not constitute a

ministerial act.

     Petitioners argue that, after they received the letter from

the IRS Appeals Office on July 6, 1993, they were not contacted

for nearly 6 months regarding their case and did not have a

meeting for another 2 months after they were finally contacted.

Thus, petitioners contend that the interest that accrued for the

time period between July 6, 1993, when they received their first

letter from the Miami Appeals Office, and January 24, 1994, when

they met with the Appeals officer, was attributable to the

dilatory performance of a ministerial act by IRS employees.

     The Court notes that the July 6, 1993, letter to petitioners

provided them with the name and telephone number of a person to

contact in the Miami Appeals Office in the event they had any

questions or concerns about their case.   Petitioners acknowledged

that they made no attempt to contact the Miami Appeals Office to

schedule a meeting or voice any concerns over not having been

contacted.   Although petitioners contend they desired an earlier


     5
          The final Treasury regulation under sec. 6404 was
issued on Dec. 18, 1998. The final regulation contains the same
definition of ministerial act as the temporary regulation. See
sec. 301.6404-2(b)(2), Proced. & Admin. Regs. The final
regulation generally applies to interest accruing on deficiencies
or payments of tax described in sec. 6212(a) for tax years
beginning after July 30, 1996. See sec. 301.6404-2(d)(1),
Proced. & Admin. Regs.
                                - 10 -


appeals conference, their claim is not supported by their actual

conduct as they made no attempt to schedule an earlier meeting.

     Petitioners next contend that the Appeals officer took very

unreasonable legal positions when they met on January 24, 1994.

Petitioners claim they wished to settle the case at that meeting

but were unable to do so because the Appeals officer took

unreasonable positions.    Petitioners did not have another meeting

with an IRS employee until their October 3, 1994, meeting, which

was suggested by respondent’s counsel.

     A decision concerning the proper application of Federal tax

law is not a ministerial act.     See sec. 301.6404-2T(b)(1),

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

1987).   Petitioners had not provided respondent with any

documentary evidence relating to the adjustments to their 1989

and 1990 returns before the meeting on January 24, 1994.      At that

meeting the revenue agent explained to petitioners the nature of

respondent’s determinations and allowed petitioners to present

their case.   Based on petitioners’ presentation, the Appeals

officer was satisfied that respondent’s determinations were

correct.   However, he agreed to take the case under further

advisement to allow petitioners to produce additional evidence to

support their claims.     The Appeals officer’s analysis of

petitioners’ case clearly required discretion and judgment in

applying Federal tax law to the facts and circumstances of
                                - 11 -


petitioners’ case.     Therefore, his acts did not constitute a

ministerial act.     Since there was no erroneous or dilatory

performance of a ministerial act, the Commissioner lacked the

authority to abate interest for this period.

        Finally, petitioners claim that, after their October 3,

1994, meeting with the IRS agent, the Appeals officer and

respondent’s attorney also took unreasonable positions in

discussing settlement options and delayed in preparing for trial,

causing petitioners to have their case continued and to hire an

attorney to represent them.     Again, a decision concerning the

proper application of Federal tax law is not a ministerial act.

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

Fed. Reg. 30163 (Aug. 13, 1987).     The agent, the Appeals officer,

and respondent’s attorney continually attempted to settle

petitioners’ case.    The positions they took regarding the issues

in petitioners’ case were based on their application of Federal

tax law to the facts and circumstances surrounding petitioners’

case.    These actions required the exercise of discretion and

judgment.    Moreover, petitioners’ lack of cooperation and failure

to respond to IRS counsel’s requests for discovery necessitated

that respondent resort to this Court for an order compelling

petitioners to produce documentation and show cause why proposed

stipulations should not be accepted.     Any delays caused by

petitioners’ decision to retain an attorney and to continue their
                              - 12 -


case were attributable to petitioners.   There was no erroneous or

dilatory performance of a ministerial act by an officer or

employee of respondent during this period and any delays

perceived by petitioners during this period were of petitioners’

own making.   Therefore, on this record, the Commissioner’s

refusal to abate interest was not an abuse of discretion under

section 6404(e).   Respondent’s determination is sustained.




                                         Decision will be entered

                                    for respondent.
