                        T.C. Memo. 2004-139



                      UNITED STATES TAX COURT



               ROBERT B. KEMP, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5330-02.               Filed June 10, 2004.


     John P. Konvalinka, for petitioner.

     Monica D. Armstrong, for respondent.



                        MEMORANDUM OPINION


     GALE, Judge:   Respondent issued a notice of final

determination denying petitioner’s claim for an abatement of

interest on his 1989 and 1990 Federal income tax liabilities.

Petitioner timely filed a petition for review with this Court
                                - 2 -

pursuant to section 6404(h).1   The issue for decision is whether

respondent abused his discretion in failing to abate interest on

petitioner’s Federal income tax liabilities for 1989 and 1990.

We hold that he did not.

                            Background

     The parties submitted this case fully stipulated pursuant to

Rule 122.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time of filing of

the petition, petitioner resided in Hixson, Tennessee.

     In June 1994, petitioner was informed by letter that his

1992 Federal income tax return had been selected for examination.

The letter also requested certain documents, including

petitioner’s 1991 and 1993 Federal income tax returns.   Later

that month, petitioner had lengthy meetings with the revenue

agent who was conducting the examination.   The revenue agent went

on maternity leave 2 months later.

     In September 1994, petitioner filed amended Federal income

tax returns for 1991, 1992, and 1993, reporting additional

taxable income of $173,817, $191,595, and $63,628, respectively.




     1
       Unless otherwise indicated, all section references are to
the applicable provision of the Internal Revenue Code for the
periods involved, and all Rule references are to the Tax Court
Rules of Practice and Procedure.
                               - 3 -

     On or about February 21, 1995, petitioner filed an amended

Federal income tax return for 1990, reporting additional taxable

income of $134,859.

     Petitioner paid all of the additional tax due and accrued

interest with respect to the foregoing amended returns.

     At some point between June 1994 and April 1995, petitioner’s

1993 taxable year was added to the examination covering 1992.     In

April 1995, petitioner’s examination was assigned to a new

revenue agent, who discussed the examination of 1992 and 1993 on

two occasions with petitioner’s representative.   No additional

information was obtained from petitioner by respondent after

August 10, 1995.

     On or about August 25, 1995, the revenue agent examining

petitioner’s returns initiated a civil fraud referral for 1992

and 1993, and on September 12, 1995, the agent issued a 30-day

letter to petitioner proposing civil fraud penalties for those 2

years.

     On September 20, 1995, a special agent from respondent’s

Criminal Investigation Division met with the revenue agent

conducting petitioner’s 1992 and 1993 examination regarding

petitioner’s case, and all civil action concerning those years

ceased.   On December 15, 1995, the special agent issued a

memorandum to respondent’s Examination Division advising it to

suspend or not initiate any civil action against petitioner for
                               - 4 -

individual income tax returns for the years 1989 through 1993, on

account of a grand jury investigation of alleged violations of

section 7206(1).   The memorandum further ordered the transfer of

all original returns and administrative files for the foregoing

years.

     On April 9, 1996, a Federal grand jury returned a 15-count

indictment against petitioner, including 4 counts of alleged

violation of section 7206(1) for taxable years 1989 through 1992,

and various nontax criminal violations.

     Sometime in July or August 1996, petitioner filed an amended

Federal income tax return for 1989, reporting additional taxable

income of $128,265 and additional tax due of $37,876.2

Petitioner paid the resulting additional tax due and accrued

interest.

     Petitioner’s criminal trial commenced on September 10, 1996.

On September 13, 1996, a jury found petitioner guilty of

violating section 7206(1) for each of the taxable years 1989

through 1992.   Petitioner was acquitted of all nontax charges.

Petitioner filed a timely appeal.




     2
       The parties stipulated that the amended return for 1989
was filed in April 1996 reporting additional taxable income of
$102,506. However, the actual amended return in evidence
indicates the time and amount described above. This discrepancy
does not, in any event, affect the analysis or the result in this
case.
                               - 5 -

     On December 29, 1997, respondent issued a notice of

deficiency to petitioner determining fraud penalties under

section 6663 for 1992 and 1993.    Petitioner filed a timely

petition in this Court, seeking a redetermination of the fraud

penalties for 1992 and 1993.

     On July 6, 1998, petitioner’s conviction was affirmed by the

Court of Appeals for the Sixth Circuit.

     On or about August 3, 1998, petitioner received a letter

from respondent stating in part:    “Thank you for your inquiry of

June 05, 1998.   We have resolved your problem with your 1989 tax

return.   Please disregard the prior request.”

     By memorandum dated March 3, 1999, District Counsel of

respondent advised respondent’s Examination Division that the

criminal proceedings against petitioner were concluded.

     In connection with the proceedings in this Court concerning

a redetermination of the 1992 and 1993 fraud penalties,

petitioner and respondent became involved in a dispute over

discovery and a continuance of the trial.    On July 16, 1999,

petitioner requested a continuance, which was granted on July 20,

1999.   On July 19, 1999, the revenue agent who conducted the

examination of petitioner’s 1992 and 1993 taxable years met with

respondent’s counsel at the U.S. attorney’s office to review the

record in petitioner’s criminal case.    At that time, upon a

review of the criminal case record and the administrative file,
                                - 6 -

the decision was made to assert civil fraud penalties against

petitioner for 1989, 1990, and 1991.

     On October 4, 1999, respondent issued a notice of deficiency

to petitioner determining fraud penalties under section 6663 for

1989, 1990, and 1991.    Petitioner sought a redetermination in

this Court only with respect to the fraud penalty for 1991.

     The fraud penalties for 1989 and 1990 were assessed on April

19, 2000, and petitioner paid them on October 17, 2000.    On

October 20, 2000, petitioner filed a Claim for Refund and Request

for Abatement of Penalty and Interest with respect to 1989 and

1990.   On September 6, 2001, respondent sent petitioner a letter

advising him of a preliminary determination to deny his claim for

abatement of interest, with an “explanation” of the reasons for

the denial attached.    The attached explanation stated in part:

     Your claim for abatement of interest cannot be allowed
     since there were no errors or delays in performing a
     ministerial act. For instance, the agent taking
     maternity leave * * * is not a ministerial act, nor is
     the delay caused by the investigation, the appeal
     process, or the court proceedings.

Petitioner administratively appealed this determination, and on

January 11, 2002, respondent issued a notice of final

determination to petitioner denying his request for abatement of

interest for 1989 and 1990 and giving the following reason:

“There was no error or delay relating to the performance of a

ministerial act in processing the examination of your return.”
                                - 7 -

                             Discussion

     Interest on a Federal income tax liability, including a

fraud penalty, generally begins to accrue on the due date of the

return.   Secs. 6601(a), (e)(2)(B), 6622.

     The Commissioner has authority to abate an assessment of

interest on a deficiency or payment of income tax if the accrual

of such interest is attributable to an error or delay by an

officer or employee of the Internal Revenue Service in performing

a ministerial act.   Sec. 6404(e)(1).3    A ministerial act means a

procedural or mechanical act that does not involve the exercise

of judgment.    Lee v. Commissioner, 113 T.C. 145, 149-150 (1999);

sec. 301.6404-2T, Temporary Proced. & Admin. Regs., 52 Fed. Reg.

30163 (Aug. 13, 1987).   Any such error or delay shall be taken

into account “only * * * after the Internal Revenue Service has

contacted the taxpayer in writing with respect to * * * [the]

deficiency or payment” on which the interest has accrued.     Sec.

6404(e)(1).    Finally, the legislative history indicates that

Congress did not intend the abatement authority to be used

routinely to avoid payment of interest; rather, Congress intended

the provision to be used in instances “where failure to abate


     3
       Sec. 6404(e) was amended by the Taxpayer Bill of Rights 2,
Pub. L. 104-168, sec. 301, 110 Stat. 1457 (1996), to permit the
Commissioner to abate interest with respect to an “unreasonable”
error or delay resulting from “managerial” or ministerial acts.
The amendment is effective for interest accruing with respect to
deficiencies or payments for tax years beginning after July 30,
1996, and is therefore inapplicable here.
                               - 8 -

interest would be widely perceived as grossly unfair.”   S. Rept.

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

426, at 844 (1985), 1986-3 C.B. (Vol. 2) 1, 844.   We have

jurisdiction to order an abatement of interest where the

Commissioner’s failure to do so is an abuse of discretion.     Sec.

6404(i)(1).4

     Petitioner seeks an abatement of all interest accrued with

respect to the fraud penalties for 1989 and 1990, in effect

claiming that the abatement should cover the entire period back

to the due date of the returns for those years.    Invoking section

301.6404-2T, Example (2), Temporary Proced. & Admin. Regs.,

supra,5 petitioner contends that respondent’s October 4, 1999

issuance of the notice of deficiency determining the 1989 and

1990 fraud penalties was a ministerial act that was improperly

delayed, since respondent possessed all information and had

completed all consultations with respect to these penalties by

August 1995.   Further, petitioner argues, the imposition of

interest in these circumstances would be “widely perceived as

grossly unfair” because respondent delayed asserting the 1989 and

1990 fraud penalties as a “litigation tactic” in the proceedings


     4
       In 2002, sec. 6404(i) was redesignated sec. 6404(h).
Victims of Terrorism Tax Relief Act of 2001, Pub. L. 107-134,
sec. 112(d)(1)(B), 115 Stat. 2434 (2002).
     5
       For taxable years beginning after July 30, 1996, this
regulation has been amended and made final. See sec. 301.6404-
2(d), Proced. & Admin. Regs.
                                - 9 -

before this Court involving a redetermination of the fraud

penalties determined for 1992 and 1993.

     Respondent counters that there was no ministerial delay in

connection with the October 1999 determination of the fraud

penalties for 1989 and 1990 because respondent was restricted

from examining petitioner’s 1989 and 1990 amended returns,

because of the criminal prosecution of petitioner covering those

years, until the March 3, 1999 memorandum of District Counsel

advising respondent’s Examination Division of the conclusion of

the criminal proceedings.    Respondent further argues that, in any

event, respondent’s first contact in writing with petitioner

regarding the 1989 and 1990 fraud penalties was the October 4,

1999 notice of deficiency.

     We find untenable petitioner’s argument that any delay

beyond August 1995 in issuing a notice of deficiency determining

the 1989 and 1990 fraud penalties constituted a delay or error in

the performance of a ministerial act.6    Petitioner contends that

all information had been provided to respondent, and all

consultations completed, with respect to the 1989 and 1990 fraud



     6
       Other than his bald claim that all interest should be
abated, petitioner offers no argument in support of the
proposition that an abatement back to the due dates of his 1989
and 1990 returns should occur. We accordingly consider only the
earliest claim for which petitioner offers any support; namely,
that interest should be abated starting in August 1995 because
respondent should have issued a notice of deficiency concerning
the 1989 and 1990 fraud penalties at that time.
                               - 10 -

penalties by August 1995.    In so contending, petitioner claims to

fall within section 301.6404-2T, Example (2), Temporary Proced. &

Admin. Regs., supra.7    The example provides that, where an

examination of a taxpayer’s return has revealed a deficiency, the

issuance of a notice of deficiency is a ministerial act “After

the taxpayer and the Internal Revenue Service have identified all

agreed and unagreed issues, the notice has been prepared and

reviewed (including review by District Counsel, if necessary) and

any other relevant prerequisites have been completed”.     Id.

Petitioner’s 1989 amended return, reporting the previously

unreported income upon which the fraud penalty was based, had not

even been submitted to respondent in August 1995.    It was not

submitted until July or August 1996, by which time civil action

for the years 1989 through 1993 had been suspended.

     While petitioner’s amended return for 1990 had been

submitted in February 1995, before the suspension of civil

action, petitioner has not shown that a notice of deficiency for

1990 had been prepared or reviewed, or that all other relevant

prerequisites for its issuance had been completed, before the

suspension of civil action in December 1995.    Once civil action

was suspended to facilitate development of the criminal case

against petitioner, the delay in taking actions in the civil

cases for 1989 and 1990, including any delay in issuing a notice


     7
         See supra note 5.
                              - 11 -

of deficiency, during the period in which the criminal case was

pending, was not a delay in the performance of a ministerial act.

See Taylor v. Commissioner, 113 T.C. 206, 213 (1999), affd. 9

Fed. Appx. 700 (9th Cir. 2001).   The decision to defer civil

proceedings until resolution of the criminal aspects of a case is

an exercise of judgment, not a ministerial act.   Id.   Thus, there

was no delay in the performance of a ministerial act with respect

to the fraud penalties for 1989 and 1990 through the period that

petitioner’s criminal case was pending; that is, from the

cessation of civil action in December 1995 until the July 6, 1998

affirmance of petitioner’s conviction became final.

     As for the period between the time that petitioner’s

conviction became final and the October 4, 1999 issuance of the

notice of deficiency determining the 1989 and 1990 fraud

penalties, petitioner points to no specific ministerial act that

was improperly delayed, other than the issuance of the notice

itself.   As with the period preceding cessation of civil action,

however, petitioner has not shown that all of the necessary

review and exercise of judgment that underlay the decision to

assert fraud had been completed at this time.   In this regard,

petitioner’s convictions under section 7206(1) for 1989 and 1990

had no preclusive effect with respect to whether he committed

civil fraud in those years.   See Wright v. Commissioner, 84 T.C.

636 (1985).   Thus, a decision to assert civil fraud required an
                             - 12 -

assessment of the supporting evidence.    Moreover, while

petitioner’s 1992 and 1993 taxable years had been the subject of

an examination that proposed civil fraud penalties before the

cessation of civil action, the 1989 and 1990 taxable years had

not, insofar as the record discloses.    Thus, the decision to

assert fraud in the October 1999 notice necessarily involved a

review of the evidence of fraud and the exercise of judgment, the

antithesis of a ministerial act.8

     Accordingly, we conclude that petitioner has failed to

demonstrate any error or delay in the performance of a

ministerial act before the issuance of the October 4, 1999 notice

of deficiency.9




     8
       As for petitioner’s contention that respondent’s decision
to assert fraud for 1989 and 1990 was a “litigation tactic” that,
if allowed to give rise to interest, “would be widely perceived
as grossly unfair”, we note that petitioner did not even attempt
to dispute the fraud penalties in this Court. In any event,
perceptions of gross unfairness come into play only once an error
or delay in the performance of a ministerial act has been
established.
     9
       In light of our conclusion that petitioner has failed to
identify any ministerial error or delay prior to the issuance of
the Oct. 4, 1999 notice of deficiency, we need not decide whether
the Aug. 3, 1998 letter petitioner received from respondent was a
contact in writing with respect to 1989 for purposes of sec.
6404(e)(1). Moreover, petitioner has not alleged, nor is there
any evidence, that any contact in writing with respect to the
deficiencies for 1989 or 1990 occurred in connection with the
development of the criminal action against petitioner. We
accordingly express no view concerning whether a written contact
in connection with a criminal referral may constitute a contact
in writing for purposes of sec. 6404(e)(1).
                              - 13 -

     Petitioner has identified no ministerial error or delay

after the October 4, 1999 issuance of the notice of deficiency,

and we find none.   After issuance of the notice determining the

fraud penalties for 1989, 1990, and 1991, petitioner failed to

petition this Court with respect to the fraud penalties for 1989

and 1990 determined in the notice.     The penalties were assessed

107 days after the expiration of the period for filing a Tax

Court petition, on April 19, 2000, and were paid on October 17,

2000.

     Petitioner advances one additional basis for finding an

abuse of discretion by respondent.     Relying on Jacobs v.

Commissioner, T.C. Memo. 2000-123, petitioner claims that

respondent abused his discretion by failing to disclose the basis

for his decision to reject petitioner’s claim for abatement of

interest.   Petitioner’s reliance on Jacobs is misplaced.     In that

case, the Commissioner had given no explanation of his decision

not to abate interest, other than a conclusory statement that

there were no errors or delays that warranted abatement.      Here,

while the explanation given in the notice of final determination

is likewise conclusory, respondent offered a more detailed

statement of his reasons in the written explanation accompanying

the preliminary determination to deny abatement.    The reasons

therein given, to the effect that the delay attributable to the

investigation of petitioner’s case and the criminal proceedings
                             - 14 -

did not constitute a delay in the performance of a ministerial

act, comport with our conclusion that no ministerial delay

occurred in these circumstances.    Moreover, the parties’

stipulations and the accompanying exhibits demonstrate that

respondent’s issuance of the notice of deficiency in question was

not a dilatory ministerial act, as petitioner claims.     In sum,

petitioner has not shown any abuse of discretion on the ground

that respondent failed to provide reasons for his decision not to

abate.

     We have considered all other contentions raised by

petitioner and conclude that they lack merit.

     For the foregoing reasons, respondent’s refusal to abate any

interest with respect to petitioner’s 1989 and 1990 deficiencies

was not an abuse of discretion.    To reflect the foregoing,


                                      Decision will be entered for

                                  respondent.
