                  T.C. Summary Opinion 2005-27



                     UNITED STATES TAX COURT



 DONALD W. AND KATHRYN B. CONNER, Petitioners v. COMMISSIONER OF
                   INTERNAL REVENUE, Respondent



     Docket No. 11617-03S.             Filed March 16, 2005.


     Donald W. and Kathryn B. Conner, pro sese.

     Lauren Epstein, for respondent.



     PANUTHOS, Chief Special Trial Judge:    This case was heard

pursuant to the provisions of sections 6330(d) and 7463.1      The

decision to be entered is not reviewable by any other court, and

this opinion should not be cited as authority.

     Respondent issued petitioners a Notice of Determination

Concerning Collection Action(s) Under Section 6320 and/or 6330


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended.
                                - 2 -

(notice of determination).    The issues for decision are: (1)

Whether respondent abused his discretion in failing to abate

interest, and (2) whether respondent improperly refused to abate

assessments for additions to tax for failure to file under

section 6651(a)(1) and failure to pay under section 6651(a)(2).

                              Background

     Some of the facts have been stipulated, and they are so

found.   Petitioners resided in Tampa, Florida, at the time the

petition was filed.

     Petitioners filed a 1997 Federal income tax return on March

1, 2001.   The 1997 return reflected a tax due.    There was no

remittance with the return.    Respondent assessed the tax as well

as interest and additions to tax.

     On May 1, 2002, respondent received an offer in compromise

(OIC) submitted by petitioners.    The OIC was returned to

petitioners on May 23, 2002, because respondent’s records

reflected that petitioners were not current in the filing of

quarterly employment tax returns.    By cover letter dated June 27,

2002, petitioners resubmitted the OIC.     Petitioners advised in

the letter that there was no payroll for their business, and

therefore no employment tax returns were due.

     The OIC was rejected in an Internal Revenue Service letter

dated April 21, 2003.   The letter advised petitioners that the

amount offered was less than the reasonable collection potential.
                                - 3 -

The letter detailed petitioners’ equity and future ability to pay

totaling $427,532.   Petitioners offered $3,000 to pay a balance

due at that time of $7,961.   The letter further noted that

petitioners’ special circumstances were considered, but they did

not warrant a decision to accept the offer.

     Meanwhile, respondent issued to petitioners a notice of

intent to levy dated July 12, 2002, for the 1997 taxable year.

Petitioners submitted a timely Form 12153, Request for a

Collection Due Process Hearing.    Petitioners attached a statement

explaining their position.    Petitioners asserted that they were

out of work and that Mrs. Conner was disabled.    Petitioners

asserted that they were in very poor financial condition.     They

further asserted that the IRS had delayed resolution of their

case and asked that interest and “penalties”2 be abated.

Petitioners paid the balance due on May 14, 2003, after the

notice of demand for payment but prior to the issuance of the

notice of determination.   Petitioners however seek an abatement

of interest and additions to tax.

     On June 9, 2003, the Appeals Office issued the notice of

determination that petitioners are not entitled to an abatement

of interest or additions to tax.    A timely petition was filed.



     2
      The parties have each referred to “penalties”; however we
understand the parties’ reference to mean the additions to tax
under sec. 6651(a)(1) and (2).
                                 - 4 -

                             Discussion

      This Court has jurisdiction under section 6330 to review the

Commissioner’s administrative determinations.    Sec. 6330(d).

Where the validity of the underlying tax liability is not at

issue, we review the determination for abuse of discretion.         Sego

v. Commissioner, 114 T.C. 604, 610 (2000).    Where the underlying

tax liability is in issue, we review de novo.       Goza v.

Commissioner, 114 T.C. 176, 181 (2000).

      Petitioners do not appear to argue that the failure of

respondent to accept the OIC was an abuse of discretion.

Accordingly, we need not, and do not, consider whether the

Appeals officer’s refusal to accept the OIC submitted by

petitioners was arbitrary, capricious, or without sound basis in

fact or law.   See Woodral v. Commissioner, 112 T.C. 19, 23

(1999).   We do however consider the question of abatement of

interest and additions to tax.

A.   Abatement of Interest

      We have jurisdiction over petitioners’ request for abatement

of interest because the Court has jurisdiction to review the

Commissioner’s refusal to rebate interest under section 6404.

Katz v. Commissioner, 115 T.C. 329, 340-341 (2000); Moore v.

Commissioner, 114 T.C. 171, 175 (2000).    This Court may order an

abatement of interest if the Commissioner abuses his discretion

in failing to abate interest.    Sec. 6404(h)(1).    The taxpayer
                               - 5 -

must show that the Commissioner exercised his discretion

arbitrarily, capriciously, or without sound basis in fact or law.

Woodral v. Commissioner, supra at 23.

     As applicable for the year in issue, section 6404(e) permits

the Commissioner to abate interest with respect to any

“unreasonable” error or delay resulting from a ministerial or

managerial act.3   The regulations define 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.”    Sec.

301.6404-2(b)(2), Proced. & Admin. Regs.   The regulations define

a managerial act as “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.

     Petitioners appear to assert that there was delay in

processing the OIC.   In particular, petitioners assert that delay

resulted when the OIC was returned to them by the IRS for reasons


     3
        Sec. 6404(h), formerly sec. 6404(g), is applicable to
requests for abatement after July 30, 1996. Taxpayer Bill of
Rights 2 (TBOR 2), Pub. L. 104-168, sec. 302, 110 Stat. 1457
(1996). Further, sec. 301(a)(1) and (2) of TBOR 2 permits
abatement of interest with respect to unreasonable error or delay
from “managerial” acts, effective for interest accruing with
respect to tax years beginning after July 30, 1996.
                                 - 6 -

that petitioners were not current in filing quarterly employment

tax returns.   Respondent later acknowledged that petitioners were

not required to file these returns after being provided with

information by petitioners.

     We do not conclude that respondent abused his discretion in

denying interest abatement.   Approximately 3 weeks after

petitioners submitted the OIC, May 1 to May 23, 2002, the IRS

returned the OIC, believing that petitioners were required to

file quarterly employment tax returns and that therefore they

were not current in their filing obligations.    In June 2002,

petitioners provided the IRS with information revealing that they

were not required to file and resubmitted the OIC.    Respondent

then proceeded to consider the OIC and ultimately rejected the

OIC by letter dated April 21, 2003, approximately 10 months after

the offer was resubmitted.    As indicated, the revenue officer

considering the OIC concluded that petitioners had net equity in

assets plus future ability to pay totaling $427,532.    Petitioners

had offered $3,000 to pay the balance then due of $7,961.    While

we are aware that the process of consideration of petitioners’

OIC did not proceed at a pace that petitioners might have liked,

we do not conclude that there was delay resulting from a

ministerial or managerial act.    This is particularly the case

where petitioners do not dispute the conclusions set forth in the

rejection of the OIC.
                                - 7 -

B.   Additions to Tax

       The income tax assessment against petitioners includes

additions to tax under section 6651(a)(1) and (2).    Petitioners

did not receive a notice of deficiency or otherwise have an

opportunity to dispute the additions to tax relating to their

income liabilities; therefore, they can challenge them during the

section 6330 proceeding.    Sec. 6330(c)(2)(B); see Montgomery v.

Commissioner, 122 T.C. 1, 7 (2004).     We review de novo

respondent’s determination with respect to these additions to

tax.    Goza v. Commissioner, supra at 181-182.

       Section 6651(a)(1) imposes an addition to tax of 5 percent

per month of the amount of tax required to be shown on the

return, not to exceed 25 percent, for failure to timely file a

return.    Section 6651(a)(2) imposes an addition to tax for

failure to pay timely the amount shown as tax in any return.

The addition under section 6651(a)(2) is in an amount of 0.5

percent of the amount of such tax for each month or fraction

thereof that the tax remains unpaid, not to exceed 25 percent in

the aggregate.    Under section 6651(c)(1) the 5 percent for each

additional month imposed by section 6651(a)(1) is reduced by the

amount of the addition to tax under section 6651(a)(2) to 4.5

percent for any month in which both additions are imposed.      The

additions to tax under section 6651(a)(1) and (2) are imposed
                              - 8 -

unless the taxpayer establishes that the failure was due to

reasonable cause and not willful neglect.4

     Petitioners did not present any evidence as to the reasons

for their failure to timely file and pay the tax that was due.

Under such circumstances we would have no basis to conclude that

the failure to file and failure to pay were due to reasonable

cause and not due to willful neglect.    We conclude that there is

no basis to abate the additions to tax under these circumstances.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To give effect to the foregoing,


                                      An appropriate decision will

                              be entered for respondent.




     4
        The parties have not presented argument as to the
application of sec. 7491. The Commissioner bears the burden of
production in any Court proceeding with respect to the liability
for any addition to tax. Sec. 7491. To meet this burden, the
Commissioner must come forward with sufficient evidence
indicating that it is appropriate to impose the relevant penalty
or addition to tax. Higbee v. Commissioner, 116 T.C. 438, 446
(2001). The taxpayer bears the burden of proof that the
Commissioner’s determination is incorrect and that there was
reasonable cause. Id. at 446-447.

     Assuming, without deciding, that respondent has the burden
of production, see Goodwin v. Commissioner, T.C. Memo. 2003-289;
Joye v. Commissioner, T.C. Memo. 2002-14, there is no question
but that petitioners were required to file a tax return and
failed to file the 1997 tax return until Mar. 1, 2001. Further,
petitioners did not remit payment prior to, or with, the filing
of the delinquent return.
