                   T.C. Memo. 2006-207



                 UNITED STATES TAX COURT



       JOSEPH AND THERESA MOMOT, Petitioners v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No.   2506-05.               Filed September 26, 2006.



     Ps requested R to abate assessments of interest on
deficiencies arising from Ps’ investment in a tax
shelter partnership. R issued a notice of final
determination denying Ps’ abatement claim. Ps filed a
petition for review of R’s failure to abate interest.

     Held: R’s failure to abate interest was not an
abuse of discretion under sec. 6404(e)(1), I.R.C.



Joseph and Theresa Momot, pro sese.

George W. Bezold, for respondent.
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                        MEMORANDUM OPINION

     NIMS, Judge:   This matter is before the Court on

respondent’s motion for summary judgment (respondent’s motion)

pursuant to Rule 121.   Unless otherwise indicated, all section

references are to sections of the Internal Revenue Code in effect

for the years in issue, and all Rule references are to the Tax

Court Rules of Practice and Procedure.   In their amended

petition, petitioners seek the Court’s “Review of [respondent’s]

Failure to Abate Interest Under Code Section 6404.”   The amended

petition was filed in response to a letter to petitioners dated

January 18, 2005, entitled Full Disclosure - Final Determination,

in which petitioners were advised that the final determination of

the Internal Revenue Service (IRS) was to deny their request for

an abatement of interest.

     Petitioners resided in Wisconsin when they filed their

petition.

                            Background

     Petitioners are pro se and, from the nature of their

filings, are unfamiliar with the procedures of this Court and

have had difficulty in applying its Rules.   Petitioners’ filings

consist of four brief documents:   (1) A letter dated January 24,

2005, requesting a petition for review of “Failure to Abate

Interest Under Internal Revenue Code Section 6404"; (2) a letter

dated February 9, 2005, in which petitioners requested “a
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petition application, for a review of Failure to Abate Interest”,

which the Court filed on February 10, 2005, as “Amendment to

Petition”; (3) a letter dated March 19, 2005, entitled “Amended

Petition for Review of Failure to Abate Interest Under Code

Section 6404"; and (4) a one paragraph “Notice of Objection” to

respondent’s motion.

     Relevant facts that do not appear to be in dispute are

reflected in the pleadings, respondent’s motion, the affidavit of

respondent’s counsel, and the exhibits attached thereto.    For

additional background information (since it relates to this

case), reference is made to our Memorandum Opinion in Alhouse v.

Commissioner, T.C. Memo. 1991-652, affd. sub nom. Bergford v.

Commissioner, 12 F.3d 166 (9th Cir. 1993).   In the absence of a

comprehensive statement of facts to support respondent’s motion,

the facts contained in the following summary are gleaned from the

above sources, and also from settlement documents filed at

Crystal Star Eagle v. Commissioner, docket No. 16434-96 (Dec. 7,

2001), which also relates to this case.

     Petitioners were investors in an entity called Crystal Star

Eagle in 1985 and 1986.   The entity’s investors were advised by

the promoters that they would have the legal status of tenants in

common, which permitted the direct deduction of entity items such

as certain losses, as well as depreciation, interest, and

management expenses, attributable to the entity’s activities.
                               - 4 -

     Initially, respondent separately examined the individual

returns of an indeterminate number of the entity’s 78 investors,

of which audits petitioners presumably had no knowledge, given

their representation to the IRS Service Center Interest Abatement

Coordinator that they first became aware in October 2002 that

their entity deductions were being disallowed.

     Respondent determined deficiencies against the audited

putative partners, on the basis of the sham transaction doctrine.

Five individual petitions to this Court ensued, encompassing

various taxable years from 1982 to 1985.   See Alhouse v.

Commissioner, supra.   Our decision in Alhouse analyzed the nature

of the business relationship governing the investors vis-a-vis

the managerial agent administering the various computer equipment

transactions.   We construed the investment interests as

comprising the formation of a partnership, not a tenancy in

common, for tax purposes, pursuant to the regulatory guidelines

and caselaw principles underlying section 7701(a)(2).      Id.   (The

aforementioned entity will hereinafter be referred to as the

Partnership.)   Jurisdiction to adjudicate each investor’s

partnership-related deficiencies on an individual basis was,

therefore, lacking, as dictated by the so-called TEFRA unified

audit and litigation procedures, set forth in sections 6221
                                 - 5 -

through 6223 (enacted as part of the Tax Equity & Fiscal

Responsibility Act of 1982, Pub. L. 97-248, sec. 402(a), 96 Stat.

648).    Id.

     On December 18, 1995, respondent issued Forms 870-P(AD),

Settlement Agreement for Partnership Adjustments, covering tax

years 1985 and 1986, to at least two Partnership investors.    The

proffered settlement packages proposed a diminution of the

partners’ allocable deficiencies in the amount of one-half of

their respective cash contributions, as well as the elimination

of all applicable penalties; interest charges were to be

expressly preserved.    Petitioners were not informed of the

settlement offers extended at that time or of the prior

litigation.

     On March 5, 1996, respondent issued notices of final

partnership administrative adjustment (FPAA) for 1985 and 1986 to

Claude B. Amarnick, reasserting respondent’s determination that

the Partnership was orchestrated as a tax shelter contrivance,

and disallowing all losses and deductions.    The Estate of Mr.

Amarnick (in its capacity as a partner other than the tax matters

partner (TMP)) petitioned for readjustment of the partnership

items.    William A. Tauskey, Sr., in concert with several other

partners also in receipt of the FPAA notices, intervened in the

proceeding on October 3, 1996.    Prior to his death during the

pendency of the TEFRA litigation, Mr. Tauskey was serving as the
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Partnership’s TMP, pursuant to respondent’s appointment under

section 6231(a)(7).   Neither Mr. Tauskey nor respondent furnished

a copy of the FPAAs or otherwise provided notice of the

partnership action to petitioners.

     The partnership action was settled on April 25, 2000.   The

settlement, predicated on the stipulation of the partnership

transactions as being devoid of economic substance and a bona

fide profit motive, partially disallowed the partnership loss and

deduction items for 1985, and denied the entirety of the

partnership losses and deductions for 1986.   The TMP, James A.

Grever (appointed to succeed the deceased Mr. Tauskey) was an

individual investor, unaffiliated with the Partnership’s

originator or managerial agents, and, therefore, could not

ascertain the identities of the remaining partners not

participating in the partnership action.   Respondent compiled a

schedule of the known nonparticipating partners, which included

petitioners and their contact information.    On October 20, 2000,

the Court granted Mr. Grever’s motion for an order directing

service of any notice of settlement on the aforementioned

nonparticipating partners, and providing Mr. Grever contingent

relief from any liability otherwise occasioned by his relying

solely on respondent’s schedule in the discharge of the notice
                               - 7 -

obligations imposed on the TMP pursuant to Rule 248.   A decision

reflecting the terms of the settlement was entered on December 7,

2001.

     Petitioners’ deficiencies for 1985 and 1986 consequent to

the settlement were assessed on November 18, 2002, and December

2, 2002, respectively.   Computed to the dates of assessment,

accrued interest on the 1985 deficiency totaled $6,051.89;

accrued interest on the 1986 deficiency totaled $25,137.28.

Petitioners remitted in full the underlying deficiencies for 1985

and 1986, but as of the date this case was submitted petitioners

had not paid any accrued interest.

     Petitioners’ request for abatement of interest under section

6404(e), submitted on February 4, 2003, appealed to the equities

of their predicament, adducing that they remained uninformed of

the partnership action and settlement resolution throughout the

course of the proceedings, and that they were blindsided by their

liability and the extent of the attendant interest accumulation

when the assessments were ultimately effected in late 2002.

Petitioners contended that, as unsophisticated investors, they

were oblivious to the Partnership’s structure and operation and

had no forewarning that it was devised as a tax shelter vehicle.

They claimed to have been unwittingly bamboozled by

misrepresentations of the Partnership’s organizers and marketers

and duplicitous prospectus documentation.   Petitioners claimed
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that their financial circumstances would cause them to sustain

significant economic hardship if the interest were not abated.

     Respondent summarily denied petitioners’ abatement request

on March 17, 2003.    In their administrative appeal, submitted on

April 7, 2003, and supplemented by written correspondence on

January 11, 2004, petitioners asserted their entitlement to a

partial abatement in an unspecified amount, reiterating equitable

considerations along the same vein as the aforementioned fairness

arguments.    Respondent rejected petitioners’ appeal in a final

determination on January 18, 2005, citing the protracted

partnership litigation as the predominant factor contributing to

the delay.

     On January 18, 2005, respondent sent petitioners a letter

entitled Full Disallowance - Final Determination, which reads in

part as follows:

     Dear Mr. & Mrs. Momot:

     This letter is to inform you that we are disallowing
     your request for an abatement of interest. We call
     this decision a determination. This letter is our
     final determination for purposes of Internal Revenue
     Code Section 6404.

     We regret that our final determination is to deny your
     request for an abatement of interest. We had to deny
     your request for the following reason(s):

          •      After review of available records and other
                 information, we did not find any unreasonable
                 errors or delays on our part that merit the
                 abatement of interest for tax years 1985 and 1986.
                 (See Form 843, Claim). The time it took for the
                 Tax Court Decision against Crystal Star Eagle with
                                 - 9 -

                  whom you invested, which resulted in the
                  disallowance of the partnership deductions you
                  took, and the fact that you were not notified
                  during Tax Court proceedings with the partnership,
                  a separate entity, is not a Ministerial Act.

                              Discussion

       Section 6404(e)(1) provides, in pertinent part, that

respondent may abate the assessment of interest on any deficiency

attributable to an error or delay by an officer or employee of

the IRS in performing a ministerial act.    (Amendments to section

6404(e), enacted in 1996, expanded the scope of the IRS’s

discretionary authority to abate interest attributable to

“unreasonable” errors or delays resulting from the performance of

“managerial” acts.    Because these amendments are not effective on

a retroactive basis for tax years beginning before August 1,

1996, they do not apply to the instant case.)

       A ministerial act denotes a procedural or mechanical act.

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

30163 (Aug. 13, 1987).    The exercise of judgment or discretion,

such as respondent’s deliberation concerning the proper

application of Federal tax law or other law, is not a ministerial

act.    Id.   (“Ministerial act” is likewise construed in the final

version of the regulations to section 6404, which are effective

for tax years beginning after July 30, 1996.    See sec. 301.6404-

2(b)(2), Proced. & Admin. Regs.)
                                - 10 -

     Congress intended section 6404(e) to be availed of where the

disallowance of a taxpayer’s request for abatement “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.     Section 6404(e) was not

conceived of as an expedient to “routinely * * * avoid payment of

interest”.   Id.

     Our jurisdiction to order an abatement of interest is

circumscribed to those instances where respondent’s failure to do

so is an abuse of discretion.    Sec. 6404(h)(1).   Our review of

respondent’s determination, to which we accord due deference, is

oriented to the particular facts presented by each case.      Jacobs

v. Commissioner, T.C. Memo. 2000-123.      For the reasons discussed

below, respondent’s failure to abate the assessment of interest

on petitioners’ deficiencies was not arbitrary, capricious, or

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

112 T.C. 19, 23 (1999).

     Generally, the mere passage of time during the litigation

phase of a tax dispute does not establish error or delay by

respondent in performing a ministerial act.      Lee v. Commissioner,

113 T.C. 145, 150 (1999).    During the late 1970s and throughout

the 1980s, the proliferation of abusive tax shelters generated a

myriad of tax shelter cases.    See Beagles v. Commissioner, T.C.

Memo. 2003-67.     The delay in assessment of petitioners’ 1985 and
                               - 11 -

1986 deficiencies and concomitant interest accrual, though, was

occasioned by the promotion of the partnership interests as co-

ownership interests and was not manifestly attributable to

administrative nonfeasance.

       The initial partnership action was not amenable to the

jurisdiction of this Court due to respondent’s inadvertent

noncompliance with the TEFRA procedures, Alhouse v. Commissioner,

T.C. Memo. 1991-652, which would not have occurred had the

Partnership been properly characterized as such.    The

unsuccessful appeal of that case by the taxpayers involved and

decided by the Court of Appeals for the Ninth Circuit, prolonged

its duration by close to 2 years.    The eventual issuance of the

FPAAs was deferred for an additional two plus years because

respondent elected to pursue settlement agreements with some but

not all individual partners.    Respondent’s strategic decision to

induce settlements with certain individual members of the

investment group, however, is a matter wholly within his

discretion and does not constitute a ministerial act,

particularly since the TMP and remaining partners were not

readily identifiable.    Dadian v. Commissioner, T.C. Memo. 2004-

121.

       Additionally, the TEFRA action might have been settled more

expeditiously than the four plus years it took to conclude, but

for the reluctance of the participating partners in that case to
                              - 12 -

abide by the decision in Alhouse v. Commissioner, supra.     The

participating partners persistently attempted to resuscitate a

challenge to the Partnership’s tax classification status, as

documented in a series of motions submitted during the pendency

of the TEFRA case.

     Finally, because the various TMPs throughout the TEFRA

proceeding were investors similarly situated to petitioners, who

were not privy to the Partnership’s operation and subscription

information, notice to the nonparticipating partners was

apparently not feasible until respondent procured the

identification list.   Even if the failure to inform petitioners

of the partnership proceedings constituted a dereliction of the

obligations of the TMP, the notice responsibilities under the

TEFRA procedures are allocated to the TMP, and not the IRS.      See

sec. 6223(g).   The nonperformance of the requisite TEFRA notice

function by a TMP is not an IRS error requiring the abatement of

interest.   See Jaffe v. Commissioner, T.C. Memo. 2004-122; Fargo

v. Commissioner, T.C. Memo. 2004-13.

     To reflect the foregoing,


                                      An appropriate Order and

                                 Decision will be entered

                                 granting Respondent’s Motion.
