                      113 T.C. No. 10



                UNITED STATES TAX COURT



           WILLIAM GRANT LEE, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 7263-97.                     Filed August 18, 1999.


     P and his former wife claimed losses from a tax
shelter partnership on their 1980 Federal income tax
return. In April 1984, R issued a notice of deficiency
denying those losses. In July 1984, P filed a petition
in this Court contesting the denial of the losses.

     P's case was not resolved until 1995 when P and R
entered a settlement agreement. Pursuant to the
settlement agreement, the Court entered a decision that
there was a deficiency in P's Federal income tax for
1980. In 1995, R granted P's former wife innocent
spouse relief pursuant to sec. 6013(e), I.R.C.

     Pursuant to sec. 6404(e), I.R.C., P requested an
abatement of interest on his 1980 Federal income tax.
In November 1996, R issued a notice of final
determination denying P's claim to abate interest. P
filed a petition for review of R's failure to abate
interest.
                               - 2 -

          Held: R's failure to abate interest was not an
     abuse of discretion.


     William Grant Lee, pro se.

     Christian A. Speck, for respondent.


     VASQUEZ, Judge:   On November 5, 1996, respondent issued a

notice of final determination denying petitioner's claim to abate

interest pursuant to section 6404(e).1

     The sole issue for decision is whether petitioner is

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

                         FINDINGS OF FACT

     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.

     At the time the petition was filed, petitioner resided in

Benicia, California, and his net worth did not exceed $2 million.

Petitioner has a college degree in petroleum engineering, and in

1980, he worked as a systems engineer.

     During the late 1970's and early 1980's, William Kilpatrick

(Mr. Kilpatrick) promoted a tax shelter for the alleged purpose

of producing alternative fuels (Kilpatrick shelter).   In 1980, on

account of the extraordinary income he received in that year,

petitioner invested in the Kilpatrick shelter by purchasing an


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue.
                                - 3 -

interest in General Investment Group (GIG) partnership.    GIG was

a partner in Salmon Realty partnership.    Salmon Realty was one of

many partnerships which made up the Kilpatrick shelter.

     Petitioner and Vida Lee (his former spouse)2 filed a joint

Federal income tax return for 1980 (1980 return) claiming

partnership losses from GIG totaling $20,705.    On April 12, 1984,

respondent issued a notice of deficiency to petitioner and Vida

Lee disallowing the partnership losses of GIG.    Respondent issued

similar notices of deficiency to other investors in GIG.

     On July 2, 1984, with petitioner's knowledge and on behalf

of petitioner and other investors in GIG, Declan O'Donnell (Mr.

O'Donnell), an attorney, filed a petition in this Court

contesting respondent's disallowance of GIG's losses (the GIG

case).    Mr. O'Donnell filed numerous other petitions on behalf of

investors in other Kilpatrick shelter partnerships contesting

respondent's disallowance of similar losses (collectively, the

civil cases).

     In 1979, the Securities and Exchange Commission (SEC) began

investigating Mr. Kilpatrick and Mr. O'Donnell regarding their

promotion of interests in the Kilpatrick shelter.     In 1982, in a

27-count indictment, Mr. Kilpatrick and Mr. O'Donnell were

charged with conspiracy to defraud the Internal Revenue Service

(IRS) by claiming false partnership deductions in violation of 18


     2
         In 1989, petitioner and Vida Lee divorced.
                                - 4 -

U.S.C. section 371 and for willfully aiding or assisting in the

preparation or presentation of returns which were false or

fraudulent in violation of section 7206(2).

     The criminal cases against Mr. Kilpatrick and Mr. O'Donnell

began in 1982 and continued through December 1989.    This included

(1) an appeal to the U.S. Court of Appeals for the Tenth Circuit,

(2) a grant of certiorari by the U.S. Supreme Court (Supreme

Court), (3) a decision by the Supreme Court remanding to the

Federal District Court, (4) an acquittal by the Federal District

Court on 26 of the 27 counts, and (5) a dismissal of the 27th

count by the Department of Justice.

     In 1985, the Court assigned the civil cases to Judge

Whitaker.   Neither petitioner nor Mr. O'Donnell filed a motion to

calendar the GIG case.

     Initially, respondent did not file a motion to calendar the

civil cases because the Government chose to conclude the criminal

cases against Mr. Kilpatrick and Mr. O'Donnell first.   Respondent

chose this litigation strategy for several reasons.   If

respondent had chosen instead to proceed first with the civil

cases, many of his potential witnesses at the civil trials might

have had legitimate Fifth Amendment claims as a result of the

ongoing criminal proceedings.   Respondent also intended to use

information obtained in the ongoing grand jury proceedings in the

civil trials, to the extent permissible.   Further, respondent

intended to call witnesses in the criminal trials who resided
                                - 5 -

outside the United States and, hence, outside the subpoena power

of this Court.    Respondent hoped to introduce testimony given by

these witnesses in the criminal trials into the record of the

civil trials.

     After the conclusion of the criminal trials against Mr.

Kilpatrick and Mr. O'Donnell, the proceedings in the GIG case

were further delayed because of several procedural motions on the

part of respondent and by Mr. O'Donnell's filing of so-called

Kelley motions to dismiss because of the expiration of the period

of limitations.   The parties litigated the Kelley motions all the

way to the Supreme Court.   The Supreme Court eventually ruled on

the motions.

     In or around December 1993, the Tax Court calendared the GIG

case for trial on February 6, 1995.

     Around October 1994, Mr. O'Donnell withdrew as counsel in

the GIG case because of (1) a lack of communication with his

clients and (2) respondent's intention to call Mr. O'Donnell as a

witness in the civil trials.   Before Mr. O'Donnell's withdrawal,

respondent dealt with Mr. O'Donnell with respect to the GIG case.

After Mr. O'Donnell withdrew, respondent immediately began

directly contacting petitioner concerning the GIG case.

     As of 1984, the IRS proposed settlement offers to the

investors of the Kilpatrick shelter and a substantial number of

investors accepted.   In March 1995, petitioner accepted a

settlement offer from respondent.   Pursuant to the settlement,
                                  - 6 -

the Court entered a decision that petitioner owed a deficiency in

income tax for 1980.   Sometime before November 1996, the interest

liability was assessed.   In 1995, respondent granted Vida Lee

innocent spouse relief pursuant to section 6013(e).

                              OPINION

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

Secretary may abate the assessment of interest on any payment of

tax to the extent that any error or delay in payment is

attributable to an officer or employee of the IRS being erroneous

or dilatory in performing a ministerial act.3   For purposes of

section 6404(e)(1), an error or delay is taken into account only

(1) if no significant aspect of such error or delay can be

attributed to the taxpayer and (2) after the IRS has contacted

the taxpayer in writing with respect to such deficiency or

payment.   See sec. 6404(e)(1).

     This Court may order abatement where the Secretary abuses

his discretion by failing to abate interest.    See sec. 6404(i).

In order to prevail, the taxpayer must demonstrate that in not

abating interest the Secretary exercised his discretion



     3
        In 1996, sec. 6404(e) was amended under sec. 301 of the
Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1452, 1457
(1996), to permit the Secretary to abate interest with respect 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; therefore, the amendment is
inapplicable to the case at bar. See Woodral v. Commissioner,
112 T.C. 19, 25 n.8 (1999).
                               - 7 -

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

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

     When enacting section 6404(e), Congress intended for the

Commissioner to abate interest "where failure to abate interest

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.   Congress, however, did

not intend that abatement "be used routinely to avoid payment of

interest."   Id.

     This is our first occasion to decide what constitutes a

ministerial act for purposes of section 6404(e).   Section 6404(e)

does not define what is meant by the term "ministerial act".

     The legislative history behind the enactment of section

6404(e) provides guidance to what Congress deemed to be a

ministerial act.   The House Ways and Means Committee report

(House report) and the Senate Finance Committee report (Senate

report) state:

     the term "ministerial act" [should] be limited to
     nondiscretionary acts where all of the preliminary
     prerequisites, such as conferencing and review by
     supervisors, have taken place. Thus, a ministerial act
     is a procedural action, not a decision in a substantive
     area of tax law. * * * [H. Rept. 99-426, supra at
     845, 1986-3 C.B. (Vol. 2) at 845; S. Rept. 99-313,
     supra at 209, 1986-3 C.B. (Vol. 3) at 209.]

The House report and the Senate report also provide examples of

what constitutes a delay in performing a ministerial act.   The

House report states:
                                   - 8 -

       an unreasonable delay in the issuance of a statutory
       notice of deficiency after the IRS and the taxpayer
       have completed efforts to resolve the matter would be
       grounds for abatement of interest. [H. Rept. 99-426,
       supra at 845, 1986-3 C.B. (Vol. 2) at 845.]

The Senate report states:

       a delay in the issuance of a statutory notice of
       deficiency after the IRS and the taxpayer have
       completed efforts to resolve the matter could be
       grounds for abatement of interest. * * * [S. Rept.
       99-313, supra at 209, 1986-3 C.B. (Vol. 3) at 209.]

       Temporary regulations issued by the Secretary provide a

definition for "ministerial act" and provide numerous examples of

what is or is not an error or delay in performing a ministerial

act.       See sec. 301.6404-2T, Temporary Proced. & Admin. Regs., 52

Fed. Reg. 30163 (Aug. 13, 1987).      Section 301.6404-2T(b)(1),

Temporary Proced. & Admin. Regs., supra, states:

       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.

Petitioner's Arguments

       Petitioner argues that some or all of the interest4 on his

1980 tax liability should be abated pursuant to section 6404(e).



       4
        Petitioner, however, conceded in his trial memorandum and
at trial that he was responsible for interest accruing before
1986. We, therefore, address only whether petitioner is entitled
to an abatement of interest as of Jan. 1, 1986.
                                - 9 -

Petitioner alleges that respondent committed three ministerial

errors to which delay in payment of his 1980 tax may be

attributed.

     A.   Length of Time in Disposing of Case

     Petitioner claims that the 11-year span from the issuance of

the notice of deficiency in 1984 until petitioner entered a

settlement agreement with respondent in 1995 constitutes a

ministerial error by respondent and warrants an abatement of

interest.

     The mere passage of time in the litigation phase of a tax

dispute does not establish error or delay by the Commissioner in

performing a ministerial act.   The length of time required to

resolve the GIG case was a result of the Government's litigation

strategy to dispose of the criminal indictments first and the

Court's disposition of the parties' procedural motions.

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.   We, therefore, conclude that

the passage of 11 years in the litigation phase of the case at

bar is not attributable to error or delay in performing a

ministerial act.5


     5
        Additionally, we note that in the interests of justice
Federal courts commonly defer civil proceedings pending the
completion of parallel criminal prosecutions. See United States
                                                   (continued...)
                                - 10 -

     B.   Granting of Innocent Spouse Relief

     Petitioner also contends that respondent's grant of innocent

spouse relief to his former wife Vida Lee was a ministerial

error.

     Generally, a husband and wife may file a joint return, and,

where they do so, they are jointly and severally liable for tax.

See sec. 6013(d)(3).   Former section 6013(e) set out four

requirements which, if met, provided relief for the so-called

innocent spouse from joint and several liability.6   Respondent's

determination of whether these requirements were met required the

exercise of judgment and discretion by respondent and thus could

not be a ministerial act.

     C.   Misinformation and Lack of Information

     Petitioner contends that respondent committed several

ministerial errors due to respondent's failure to communicate

relevant information and respondent's communication of

misinformation to petitioner.


     5
      (...continued)
v. Kordel, 397 U.S. 1, 12 n.27 (1970).
     6
        Former sec. 6013(e)(1) provided innocent spouse relief
where: (1) A joint Federal income tax return was filed for the
year in issue; (2) there was a substantial understatement of tax
on that return attributable to grossly erroneous items of the
other spouse; (3) in signing the income tax return, the claimed
innocent spouse did not know or have reason to know of the
substantial understatement; and (4) it would be inequitable to
hold the claimed innocent spouse liable for the deficiency in
question.
                              - 11 -

     Petitioner contends that respondent failed to contact

petitioner in regard to his 1980 deficiency during the pendency

of the GIG case prior to 1994, and this led to petitioner's delay

in payment of his 1980 tax.   Prior to 1994, petitioner was

represented by Mr. O'Donnell, and respondent was restricted by

ethical considerations from directly contacting petitioner about

his 1980 deficiency without Mr. O'Donnell's consent.    See Model

Rules of Professional Conduct Rule 4.2 (1998).   During this time,

however, respondent did contact Mr. O'Donnell on a number of

occasions to discuss the GIG case and the outstanding settlement

offers.   We therefore conclude that petitioner's argument that

respondent failed to contact him is without merit.

     Petitioner also claims that during two telephone

conversations with IRS agents concerning petitioner's 1981 and

1989 taxable years, respondent communicated misinformation to him

which constituted a ministerial error.   Petitioner alleges that

respondent misled him into believing that his 1980 deficiency had

been settled.

     During these conversations, petitioner intentionally asked

vague questions about whether unrelated issues in his 1981 and

1989 taxable years affected the 1980 taxable year.   Petitioner

never told the IRS agents that a notice of deficiency had been

issued relating to his 1980 taxable year.   When the IRS employees

stated that they knew nothing about petitioner's 1980 taxable
                             - 12 -

year, petitioner interpreted these statements to mean that his

1980 deficiency had been settled.   Given the scarcity of

information provided to the IRS employees by petitioner and the

vagueness of petitioner's questions, we find that the IRS

employees answered petitioner's questions correctly.    Assuming

arguendo that these answers qualify as ministerial acts, the

evidence failed to show that respondent's answers were erroneous

or dilatory.

     D.   Conclusion

     We conclude that respondent did not abuse his discretion in

denying petitioner's claim for abatement of interest.    To the

extent not herein discussed, we have considered petitioner's

other arguments, and we find them to be irrelevant or without

merit.

     To reflect the foregoing,

                                         Decision will be entered

                                    for respondent.
