                        T.C. Memo. 2004-34



                      UNITED STATES TAX COURT



                  DOLORES NELSON, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 14674-02.            Filed February 10, 2004.


     Dolores Nelson, pro se.

     Kathleen C. Schlenzig, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HAINES, Judge:   Respondent determined that petitioner is not

entitled to abatement of a portion of the interest due with

respect to her 1996 tax year pursuant to section 6404(e).1    The



     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code as amended, and Rule references are to the
Tax Court Rules of Practice and Procedure. Amounts are rounded
to the nearest dollar.
                               - 2 -

only issue for decision is whether respondent abused his

discretion in failing to abate the assessment of interest for the

periods April 15, 1997, to and including April 16, 1998, and May

1, 1999, until paid.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.   On the date the petition

was filed, petitioner resided in Melrose Park, Illinois.

     During 1996, petitioner received a $177,412 distribution

from a deceased friend’s individual retirement account (IRA).    No

Federal income tax was withheld from the distribution.

     Petitioner sought advice from several sources to determine

whether she had to pay Federal income tax on the distribution

from the IRA.   A financial adviser at a bank incorrectly advised

her that if she rolled the entire distribution over, she could

avoid income tax.   Internal Revenue Service personnel, answering

a telephone call from petitioner, told her the advice she had

received from the financial adviser was correct.

     Petitioner had a 1996 Federal income tax return prepared at

a senior citizen’s center reporting no income tax due.   She had

the tax return checked for accuracy by H & R Block but did not

file it.   On April 2, 1998, petitioner took the tax return to the

Internal Revenue Service’s Downers Grove, Illinois, office, where
                               - 3 -

an Internal Revenue Service examiner recalculated the taxable

income and prepared a revised Federal tax return for petitioner’s

signature.   Neither petitioner nor the examiner signed the

revised tax return on April 2, 1998.

     Petitioner filed a delinquent Federal income tax return for

1996 on April 16, 1998, reporting the entire IRA distribution as

income with income tax due of $53,760.   Petitioner paid $54,196

toward the tax liability on the same date.    Petitioner testified

she had received nothing in writing from the Internal Revenue

Service stating she did not have to file a Federal tax return for

1996 and nothing in writing stating she had no tax liability for

1996.   Moreover, petitioner testified she knew the tax-free

nature of the IRA distribution depended on rolling over the

distribution.   Even though this conclusion was based on incorrect

advice, at no time was she advised that the IRA distribution was

tax-free without a rollover.   Using the incorrect advice,

petitioner rolled over $14,512 of the $177,412 to her own IRA.

     On April 29, 1998, petitioner met with Robert Cool (Mr.

Cool) of the Chicago Internal Revenue Service Problem Resolution

Office (Problem Resolution Office) to determine whether the

Federal tax return she filed was correct.    During that meeting

petitioner verified that she had rolled $14,512 of the

distribution over into her own IRA.    Mr. Cool incorrectly advised

petitioner to file a Form 1040X, Amended U.S. Individual Income
                               - 4 -

Tax Return, reflecting a reduction in taxable income of $14,512.

Mr. Cool led petitioner to believe that she had overpaid her

income tax liability for 1996 and would be entitled to a refund.

     On the basis of the discussions at the April 29, 1998,

meeting, respondent prepared a Form 1040X for petitioner

reflecting a reduction in taxable income of $14,512, which was

sent to petitioner for signature on June 30, 1998, and again on

July 24, 1998.   Petitioner requested additional time to meet with

a tax attorney before signing the Form 1040X.    Petitioner claimed

she returned the signed Form 1040X to respondent but respondent

did not file it.

     On July 6, 1998, respondent assessed a tax of $53,760, a

late filing penalty of $12,096 pursuant to section 6651(a)(1), a

late payment penalty of $3,494 pursuant to section 6651(a)(2),

and accrued interest of $6,506.   The late filing penalty of

$12,096 was abated on the same day.

     Petitioner requested the assistance of the Taxpayer Advocate

and her congressional representatives to resolve her concerns

about the assessments of penalty and interest.   After conducting

an investigation, the Taxpayer Advocate found that petitioner’s

filed 1996 Federal income tax return was accurate and that

reasonable cause existed for the late payment of petitioner’s

1996 income tax liability.   As a result, on April 19, April 26,
                               - 5 -

and May 3, 1999, respondent abated the late payment penalty of

$222, $111, and $3,162 respectively.

     The Taxpayer Advocate also determined petitioner was

entitled to abatement of the interest assessed for the period

April 17, 1998, through April 30, 1999, because of delays caused

by the Problem Resolution Office.   Respondent abated interest of

$297, $149, and $1,012 on April 19, April 26, and May 3, 1999,

respectively.

     On January 21, 2001, petitioner filed Form 843, Claim for

Refund and Request for Abatement, requesting that respondent

abate all interest and all penalties associated with petitioner’s

tax liability for 1996.   On July 13, 2001, respondent denied

petitioner’s request for the abatement of interest for the period

April 15, 1997, through April 16, 1998, and for the period May 1,

1999, to January 21, 2001.

     On May 7, 2002, respondent issued to petitioner a Full

Disallowance--Final Determination for interest abatement for the

periods April 15, 1997, to April 16, 1998, and May 1, 1999, to

the present.

     On September 11, 2002, petitioner filed a Petition for

Review of Failure to Abate Interest Under Code Section 6404,

which did not comply with the requirements of Rule 281(b).    By

order of the Court, petitioner was given until October 24, 2002,
                               - 6 -

to file an amended petition which met the requirements of Rule

281(b).   On October 15, 2002, an amended petition was filed.

                              OPINION

     Section 6404(e)(1) provides that the Commissioner may abate

the assessment of interest on payment of tax to the extent a

delay in such payment is attributable to any error or delay by an

officer or employee of the Internal Revenue Service in performing

a ministerial act.2   Section 301.6404-2(b)(2), Proced. & Admin.

Regs., provides in part that a 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.[3]

See also Lee v. Commissioner, 113 T.C. 145 (1999); Wright v.

Commissioner, T.C. Memo. 2002-312; Donovan v. Commissioner, T.C.

Memo. 2000-220.


     2
       The Taxpayer Bill of Rights 2 (TBOR 2), Pub. L. 104-168,
sec. 301(a), 110 Stat. 1457 (1996), amended sec. 6404(e) to
permit abatement of interest for “unreasonable” error and delay
in the performance of a “ministerial or managerial” act. The
amendments to sec. 6404(e) apply to interest accruing with
respect to deficiencies or payments for taxable years beginning
after July 30, 1996. See TBOR 2 sec. 301(c), 110 Stat. 1457.
Thus, the amendments do not apply to the instant case. See
Woodral v. Commissioner, 112 T.C. 19, 25 n.8 (1999).
     3
       The quoted language from sec. 301.6404-2(b)(2), Proced. &
Admin. Regs., is identical to the language in sec. 301.6404-
2T(b)(1), Temporary Proced. & Admin. Regs., 63 Fed. Reg. 70013
(Dec. 18, 1998), which was in effect for 1996. In order to avoid
confusion, we will refer to this regulation using its current
designation, sec. 301.6404-2(b)(2), Proced. & Admin. Regs.
                               - 7 -

     Petitioner did receive incorrect advice from the Internal

Revenue Service as to the application of the Federal tax law on

two occasions; i.e., in the telephone conversation confirming

that a rollover would cause the IRA distribution to be tax free,

and by Mr. Cool’s indication that a partial rollover would reduce

the taxable income and result in a refund.   Section 408(d)(3)(C)

bars a rollover of an inherited account unless the account is

received by the surviving spouse of the contributor.   However,

giving incorrect advice concerning the proper application of

Federal tax law is not a ministerial act allowing relief under

section 6404(e).4   See sec. 301.6404-2(b)(2), Proced. & Admin.

Regs.

     The Court may order abatement if the Commissioner abuses his

discretion by failing to abate interest.   Sec. 6404(h)(1).5   In

order to prevail, a taxpayer must prove the Commissioner

exercised his discretion arbitrarily, capriciously, or without




     4
       The first instance of incorrect advice, conveyed over the
telephone, also occurred before the IRS contacted petitioner in
writing about the payment of tax and is another ground for denial
of relief. See sec. 6404(e)(1).
     5
       For the tax year 1996, this provision was designated sec.
6404(g). However, it was subsequently designated sec. 6404(i) by
secs. 3305(a) and 3309(a) of the Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. 105-206, 112 Stat.
743, 745, and then was redesignated sec. 6404(h) by sec.
112(d)(1)(B) of the Victims of Terrorism Tax Relief Act of 2001,
Pub. L. 107-134, 115 Stat. 2427, 2435. In order to avoid
confusion, we will refer to this provision using its current
designation, sec. 6404(h).
                               - 8 -

sound basis in fact or law.   Woodral v. Commissioner, 112 T.C.

19, 23 (1999); Wright v. Commissioner, supra.

     The authority to abate interest has limitations.   Although

Congress intended for the Commissioner to abate interest where

the failure to abate interest would be widely perceived as

grossly unfair,6 section 6404(e)(1) also provides that “an error

or delay shall be taken into account only if no significant

aspect of such error or delay can be attributed to the taxpayer

involved, and after the Internal Revenue Service has contacted

the taxpayer in writing with respect to such deficiency or

payment.”

     Respondent has abated all penalties, totaling $15,590.

Respondent has also abated interest in the total amount of $1,458

for the period April 17, 1998, through April 30, 1999, when Mr.

Cool of the Problem Resolution Office led petitioner to believe

she had overpaid her tax liability and would be entitled to a

refund.

     Petitioner’s 1996 Federal income tax return was filed and

the tax was paid on April 16, 1998, 1 year and 1 day after its

due date.   If a taxpayer fails to file a return and fails to pay

the tax owed, section 6404(e)(1) does not apply to the interest

that accrues on the unpaid tax before the Commissioner contacts


     6
        See Tax Reform Act of 1986, Pub. L. 99-514, sec. 1563(a),
100 Stat. 2762; S. Rept. 99-313, at 208 (1986), 1986-3 C.B.
(Vol.3) 1, 208.
                                - 9 -

the taxpayer in writing with respect to the tax.    Wright v.

Commissioner, supra.    There can be no abuse of discretion by the

Commissioner for failure to abate interest if the statute that

applies does not give the Commissioner discretion to abate the

interest.

     Interest on the interest compounds daily pursuant to section

6622.   The interest accruing from May 1, 1999, to the date of

payment was not caused by any delay by the Internal Revenue

Service, is authorized by statute, and is due and owing from

petitioner.   The failure to abate that interest was not an abuse

of discretion.

     While the Court sympathizes with petitioner’s confusion over

the interest that accrued upon her 1996 tax liability, the tax

was paid 1 year late.   It was within the discretion of the

Internal Revenue Service to deny an abatement of interest for the

periods here in question, and that discretion was not exercised

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

We hold that respondent did not abuse his discretion in failing

to abate the assessment of interest for the periods April 15,

1997, to and including April 16, 1998, and May 1, 1999, until

paid.
                             - 10 -

     In reaching our decision, we have considered all arguments

made, and, to the extent not mentioned above, we conclude that

they are moot, irrelevant, or without merit.

     To reflect the foregoing,

                                               Decision will be

                                        entered for respondent.
