                        T.C. Memo. 2010-131



                      UNITED STATES TAX COURT



                 GARY W. SWANSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20151-07.               Filed June 15, 2010.



     Vivian D. Hoard, for petitioner.

     Brenda M. Fitzgerald, for respondent.



                        MEMORANDUM OPINION


     JACOBS, Judge:   The parties submitted this case fully

stipulated pursuant to Rule 122.   The issue for decision is

whether respondent’s denial of petitioner’s claim for abatement
                               - 2 -

of interest with respect to his income tax liability for 1983 was

an abuse of discretion.   We hold that it was not.1

     All Rule references are to the Tax Court Rules of Practice

and Procedure, and unless otherwise indicated, all section

references are to the Internal Revenue Code.

                            Background

     We adopt as findings of fact all statements contained in the

stipulation of facts.   The stipulation of facts and the exhibits

attached thereto are incorporated herein by this reference.

Petitioner resided in Georgia when he filed his petition.

     In 1983 petitioner held a limited partner interest in

California Jojoba Investors (CJI).     After examination, respondent

disallowed certain deductions claimed by the partnership.

Pursuant to the provisions of the Tax Equity and Fiscal

Responsibility Act of 1982 (TEFRA), Pub. L. 97-248, sec. 402(a),

96 Stat. 648, a notice of final partnership administrative

adjustment (FPAA) was issued to CJI for 1983 on or about October

3, 1991.   In response to the FPAA, on December 23, 1991, CJI

timely petitioned this Court contesting the proposed adjustments.

Cal. Jojoba Investors v. Commissioner, docket No. 29993-91 (Cal.

Jojoba).


     1
      Petitioner previously petitioned this Court in docket No.
14032-06 to review respondent’s determination that he was liable
for additions to tax under sec. 6653(a)(1) and (2) for 1983.
That matter was resolved in Swanson v. Commissioner, T.C. Memo.
2009-31.
                                  - 3 -

     On November 1, 1993, the parties in Cal. Jojoba filed a

stipulation to be bound in which each agreed that the outcome of

Cal. Jojoba would be determined by the result reached in Utah

Jojoba I Research v. Commissioner, docket No. 7619-90 (Utah

Jojoba I).     The terms of the stipulation to be bound pertinent

hereto provided:

     1.    THE ABOVE ADJUSTMENTS ARE THE ONLY ISSUES IN THIS CASE.

              A. UPON RESOLUTION OF THESE ISSUES, A PROPOSED
              DECISION WILL BE PREPARED BY RESPONDENT’S COUNSEL.

          *        *       *        *       *       *       *

     5. A decision shall be submitted in this case when the
     decision in the CONTROLLING CASE (whether litigated or
     settled) becomes final under I.R.C. Sec. 7481

     6. If the CONTROLLING CASE is appealed, the partners in the
     California Jojoba Investors partnership consent to the
     assessment and collection of the respective deficiencies
     attributable to the partnership item adjustments, formulated
     by reference to the Tax Court’s opinion, notwithstanding the
     restrictions under I.R.C. Sec. 6225

          *        *       *        *       *       *       *

     10. This stipulation is not a settlement agreement for
     purposes of I.R.C. §§ 6224(c)(3) and 6231(b)(1)(C).

     The stipulation to be bound allowed for the imposition of

section 6621(c) tax-motivated interest:

     3. All issues involving the above adjustments shall be
     resolved as if the partnership in this case was the same as
     the partnership in the CONTROLLING CASE;

              A. If the Court makes findings of underlying facts
              with respect to tax motivated transactions, a valuation
              overstatement, or other elements applicable to a
              determination of additions to tax and/or section
              6621(c) interest, which are attributable to the above-
                                - 4 -

            designated partnership item adjustments, the findings
            of fact in the CONTROLLING CASE shall apply to the
            partners in the California Jojoba Investors partnership
            as if the partnership in this case was the same as the
            partnership in the CONTROLLING CASE

Petitioner did not enter into a closing agreement or any other

settlement agreement with respondent.

       On January 5, 1998, in Utah Jojoba I Research v.

Commissioner, T.C. Memo. 1998-6, the Court sustained respondent’s

adjustments.    Decision was entered on January 8, 1998, and became

final on April 8, 1998, no appeal having been filed.      See sec.

7483.

       Resolution of Cal. Jojoba was delayed because the tax

matters partner (TMP) of CJI refused to cooperate, and

consequently no decision document could be entered.    On January

22, 1999, we ordered counsel for the partnership and respondent

to either (1) arrange with the TMP to execute a stipulation for

decision consistent with the stipulation to be bound or (2) file

status reports explaining why the TMP could not be contacted,

with a deadline of February 17, 1999.   We ordered that if the

parties were unable to convince the TMP to execute the

stipulation for decision, respondent would submit, on or before

February 24, 1999, a motion to appoint a new TMP, explaining the

reasons for seeking a new TMP and suggesting the name of a new

TMP.
                                - 5 -

     On February 18, 1999, respondent filed a status report with

the Court stating that the TMP refused to sign the stipulation

for decision or otherwise perform his duties.2    The report stated

that respondent was prepared to enforce the stipulation to be

bound.    Thereafter, on February 25, 1999, respondent filed a

motion for entry of decision or [to] appoint a tax matters

partner.    Attached to respondent’s motion was a list of the

partners of CJI, including petitioner.    Respondent noted in his

motion that all of the listed partners had been served with the

motion.

     On August 4, 1999, counsel for the partnership sent a notice

to the partners of CJI which (1) informed the partners that

respondent had disallowed all deductions for 1983, (2) provided

the partners with information to contact the representative of

respondent who was managing the matter, and (3) informed them

that the TMP had abdicated his role.

     The record does not indicate that any other action occurred

until February 1, 2005, when the Court issued an order directing

the partners of CJI to show cause why respondent’s motion for

entry of decision should not be granted.    The order was mailed to

the last known addresses of all known partners.




     2
      The TMP did not follow the applicable procedures to
withdraw as TMP. He simply refused to cooperate.
                                - 6 -

     On February 10, 2005, respondent provided the Court with an

updated list of the addresses of all partners of CJI, including

petitioner at his address in Georgia.     On February 15, 2005, the

Court issued an order in which the Clerk of Court was directed to

serve another copy of the Court’s February 1, 2005, show cause

order on all partners at their updated addresses.

     On April 11, 2005, the Court entered an order and decision

in which the order to show cause was made absolute and

respondent’s motion for entry of decision was granted.     That

order and decision stated that the partnership item adjustments,

as determined and set forth in the FPAA, were sustained.     The

order and decision was served on all known partners, including

petitioner.   On July 10, 2005, the decision in the partnership

proceeding became final, 90 days after the order and decision was

entered.   On July 25, 2005, pursuant to respondent’s standard

procedure, respondent’s counsel transferred the case

administrative file for processing to respondent’s Appeals Office

along with a copy of our decision.      See Internal Revenue Manual

pt. 35.9.3.3 (Aug. 11, 2004).

     At the time the case administrative file was transferred, a

number of TEFRA proceedings related to partnerships tied to the

Utah Jojoba I matter were in process, which delayed the

processing of the case.   A “TEFRA Closing Package” was ultimately

prepared, and on February 6, 2006, the package was given to an
                               - 7 -

Internal Revenue Service supervisor for review.    After review, on

February 8, 2006, the TEFRA Closing Package was sent to

respondent’s Brookhaven processing center for issuance of the

affected items notices to the partners of CJI.

     On April 13, 2006, respondent sent petitioner a letter with

which was enclosed a Form 4549-A, Income Tax Discrepancy

Adjustments, and computations relevant to adjustments made to

petitioner’s 1983 Federal income tax return as a result of

petitioner’s investment in CJI.   As part of the tax calculation,

respondent determined that all or part of the underpayment of tax

petitioner was required to report on his 1983 Federal income tax

return was a substantial underpayment attributable to tax-

motivated transactions.   Therefore, pursuant to section

6621(c)(1), the annual interest rate applied to the underpayment

of tax was 120 percent of the normal interest rate.     On April 17,

2006, respondent timely issued a notice of deficiency to

petitioner with respect to his 1983 tax year.

     Petitioner timely filed a petition with the Court,3 and as

petitioner’s deficiency case went forward, on June 9, 2006,

petitioner’s representative sent a letter to respondent

requesting an abatement of all interest accrued for the period

December 31, 1983, to May 1, 2006.     Attached to the letter was a



     3
      The matter was decided in Swanson v. Commissioner, T.C.
Memo. 2009-31. See note 1.
                                - 8 -

Form 843, Claim for Refund and Request for Abatement.    By letter

dated July 10, 2006, respondent denied petitioner’s request.   The

denial was based on respondent’s determination that there was no

error or delay caused by respondent in the performance of a

ministerial act.   On July 13, 2006, petitioner appealed the

disallowance of his interest abatement request to respondent’s

Appeals Office.    On March 15, 2007, respondent sent petitioner a

Full Disallowance--Final Determination notice disallowing

petitioner’s abatement request.   In determining that there were

no errors or delays on respondent’s part that merited the

abatement of interest, respondent informed petitioner:   “We did

not find any errors or delays on our part that merit the

abatement of interest in our review of available records and

other information for the period from April 15, 2004 to May 8,

2006.”

     On September 5, 2007, petitioner petitioned the Court for a

review of respondent’s failure to abate interest pursuant to

section 6404.   In his petition, petitioner requested the Court to

determine that there is no deficiency in tax or additions to tax

for tax year 1983.   In response to this petition respondent filed

a motion to dismiss for failure to state a claim on which relief

can be granted, maintaining, inter alia, that petitioner’s

request for relief was not appropriate in an interest abatement

matter.   On November 19, 2007, petitioner filed an objection to
                               - 9 -

respondent’s motion.   On January 14, 2008, a hearing with respect

to respondent’s motion was held.   At the hearing petitioner was

given leave to file an amended petition.   On February 19, 2008,

petitioner filed an amended petition in which he requested the

abatement of interest from April 5, 1999, until April 27, 2006.4

Petitioner also requested that we abate the imposition of tax-

motivated interest assessed pursuant to section 6621(c).5

                            Discussion

I.   Requests for Abatement of Interest

      For tax years beginning before July 31, 1996, the

Commissioner had authority to abate the assessment of interest

with respect to a deficiency in income tax attributable “to any

error or delay by an officer or employee of the Internal Revenue

Service (acting in his official capacity) in performing a

ministerial act,” sec. 6404(e)(1)(A), or “any payment of tax

described in section 6212(a) to the extent that any error or

delay in such payment is attributable to such officer or employee

being erroneous or dilatory in performing a ministerial act,”

sec. 6404(e)(1)(B), but “only if no significant aspect of such

error or delay can be attributed to the taxpayer involved, and



      4
      Although the decision in Utah Jojoba I became final on Apr.
8, 1998, petitioner requests abatement of interest only from Apr.
5, 1999.
      5
      We dismissed as moot respondent’s motion to dismiss on Feb.
21, 2008.
                                - 10 -

after the Internal Revenue Service has contacted the taxpayer in

writing with respect to such deficiency or payment”, sec.

6404(e)(1) (flush language).6

     Section 6404(e) is not intended to be routinely used to

avoid payment of interest; rather, Congress intended abatement of

interest only where failure to do so “would be widely perceived

as grossly unfair.”   H. Rept. 99-426, at 844 (1985), 1986-3 C.B.

(Vol. 2) 1, 844; S. Rept. 99-313, at 208 (1986), 1986-3 C.B.

(Vol. 3) 1, 208.

     The relevant regulation provides:

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

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

Fed. Reg. 30163 (Aug. 13, 1987).

     If the Commissioner denies a taxpayer’s interest abatement

request, the taxpayer may petition this Court for review.   Sec.

6404(h)(1);7 see Hinck v. United States, 550 U.S. 501, 506 (2007)


     6
      Sec. 6404(e) was enacted by the Tax Reform Act of 1986 (TRA
1986), Pub. L. 99-514, sec. 1563(a), 100 Stat. 2762. TRA 1986
sec. 1563(b), 100 Stat. 2762, provided that the section would
apply retroactively for tax years beginning after Dec. 31, 1978,
in general.
     7
      The parties have stipulated that petitioner meets the
                                                   (continued...)
                              - 11 -

(holding that the Tax Court is the exclusive forum for judicial

review of the Commissioner’s refusal to abate interest); Baral v.

Commissioner, T.C. Memo. 2009-113.     Inasmuch as the

Commissioner’s power to abate interest is discretionary, (1) the

Court gives due deference to the Commissioner’s determination,

and (2) in order to prevail, the taxpayer must prove that the

Commissioner exercised his discretion arbitrarily, capriciously,

or without sound basis in fact or law.     Woodral v. Commissioner,

112 T.C. 19, 23 (1999).   Our inquiry is a factual one.   See

Chakoian v. Commissioner, T.C. Memo. 2009-151; Boyd v.

Commissioner, T.C. Memo. 2000-16.    And the taxpayer bears the

burden of proof.   Rule 142(a).

      Petitioner requests the abatement of interest which

otherwise would have accrued between April 5, 1999, and April 27,

2006, as well as the abatement of increased interest which

otherwise would be assessed because of a substantial underpayment

attributed to a tax-motivated transaction.

II.   Interest Accrued Between April 5, 1999, and April 27, 2006

      Section 6225(a) generally provides that no assessment of a

deficiency attributable to an adjustment to a partnership item

may be made until the decision of the Court with respect to the

partnership matter becomes final.    Petitioner contends that



      7
      (...continued)
requirements of sec. 7430(c)(4)(A)(ii).
                              - 12 -

section 6225(a) does not apply because the stipulation to be

bound was an immediately enforceable contract and hence

respondent could have assessed the tax against petitioner when

the decision in Utah Jojoba I became final.   Specifically,

petitioner maintains that there were no discretionary matters for

respondent to address because article 6 of the stipulation to be

bound waived any restrictions on assessments under section 6225

once Utah Jojoba I became final.   See supra p. 3.   According to

petitioner, all that remained to be done by respondent was to

prepare and send petitioner a bill, and thus respondent’s

“failing to make the assessment and send a bill once Utah Jojoba

I became final was a ministerial error and refusing to abate

interest during the time Utah Jojoba I became final and the bill

was issued was an abuse of discretion.”

     We do not agree that once the decision in Utah Jojoba I

became final, all that remained was for respondent to carry out a

ministerial act.   The partnership-level proceeding related to

this matter, Cal. Jojoba, was still ongoing when Utah Jojoba I

was resolved.

     We are mindful that the stipulation to be bound contained a

provision that if the controlling case (Utah Jojoba I) were to be

appealed, the partners of CJI agreed to permit the assessment and

collection of deficiencies, notwithstanding the restrictions of

section 6225.   However, that provision did not affect the
                              - 13 -

requirement that the Court enter a decision in Cal. Jojoba before

any assessment or collection could occur.   And there was no

mechanism by which respondent could declare that the Tax Court

proceeding in that docket had been resolved in his favor and

proceed to assessment before entry of a decision therein.   See

Larkin v. Commissioner, T.C. Memo. 2010-73.

      Further, while there was a delay in finalizing the

partnership-level proceeding in Cal. Jojoba, the delay was not as

a result of respondent’s failure to perform a ministerial act.

See Lee v. Commissioner, 113 T.C. 145, 150-151 (1999)

(“Respondent’s decision on how to proceed in the litigation phase

of the case necessarily required the exercise of judgment and

thus cannot be a ministerial act.”); sec. 301.6404-2T(b)(1), (2),

Temporary Proced. & Admin. Regs., supra.

     After the Court’s decision became final, respondent was

required to process the TEFRA closing package.   This was done.

Respondent’s counsel promptly forwarded his files to the

appropriate individual.   And once the TEFRA closing package was

completed, it was sent for supervisory review.

     We therefore hold that (1) the handling of the partnership-

level proceeding in Cal. Jojoba and the processing and

supervisory review of the TEFRA closing package were not delayed

by ministerial error, see sec. 301.6404-2T(b)(1), Temporary

Proced. & Admin. Regs., supra, and (2) respondent did not abuse
                                  - 14 -

his discretion in failing to abate interest charged to

petitioner.

III.       Section 6621(c) Interest

       Section 6621(c)(1), as applicable in this matter, provides

for an increased rate of interest with respect to “any

substantial underpayment attributable to tax motivated

transactions”.8      A “substantial underpayment attributable to tax

motivated transactions” is defined pursuant to section 6621(c)(2)

as “any underpayment of taxes imposed by subtitle A for any

taxable year which is attributable to 1 or more tax motivated

transactions if the amount of the underpayment for such year so

attributable exceeds $1,000.”

       Petitioner argues that because Utah Jojoba I did not apply

section 6621(c) interest to the partnership in that matter, and

because under the stipulation to be bound the outcome of Cal.

Jojoba would be determined by the result reached in Utah Jojoba

I, section 6621(c) interest should not be assessed in Cal.

Jojoba.       Petitioner maintains “This Court has the inherent

jurisdiction to force Respondent to comply with his Stipulation

to be Bound.”




       8
      Sec. 6621(c) was repealed as of Dec. 31, 1989, by the
Omnibus Budget and Reconciliation Act of 1989, Pub. L. 101-239,
sec. 7721(b), 103 Stat. 2399.
                                - 15 -

     Petitioner is incorrect.    We do not have jurisdiction

pursuant to section 6404 to abate section 6621(c) interest.    See

Kincaid v. Commissioner, T.C. Memo. 1999-419.

     We therefore hold that (1) the interest arising from Cal.

Jojoba that accrued is not the result of an IRS officer or

employee “being erroneous or dilatory in performing a ministerial

act,” and (2) respondent did not abuse his discretion in denying

petitioner’s request for an abatement of interest.

     To reflect the foregoing,


                                          Decision will be entered

                                     for respondent.
