                       113 T.C. No. 16



                UNITED STATES TAX COURT


           JEFFREY R. TAYLOR, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent


Docket No. 15544-98.                 Filed September 15, 1999.


     P was convicted of tax fraud. P seeks an abatement of
interest under sec. 6404(e), I.R.C., for the period during
which a criminal investigation and prosecution took place.
P contends that the delay in proceeding with the civil case
while the criminal investigation and prosecution were
pending was the result of a "ministerial act" by officers or
employees of the Internal Revenue Service within the meaning
of sec. 6404(e)(1)(A), I.R.C.

     Held: R's decision not to proceed with the civil case
while the criminal investigation and prosecution were
pending is not a ministerial act, and, accordingly, sec.
6404(e)(1)(A), I.R.C., is not applicable. Therefore, R's
determination disallowing P's request for abatement of
interest is sustained.


Jeffrey R. Taylor, pro se.

Catherine J. Caballero, for respondent.
                                - 2 -

                               OPINION

     DAWSON, Judge:    This case was assigned to Special Trial

Judge Carleton D. Powell pursuant to Rules 180, 181, and 183.

All Rule references are to the Tax Court Rules of Practice and

Procedure.    The Court agrees with and adopts the opinion of the

Special Trial Judge, which is set forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

     POWELL, Special Trial Judge:       This case involves the denial

of a request by petitioner to abate interest under section

6404(e).1    On December 14, 1997, petitioner submitted two Forms

843 (Claim for Refund and Request for Abatement) to respondent.

The requests pertained to the interest due on the deficiencies

for the taxable years 1986 and 1987.      By letter dated May 6,

1998, the requests were denied, and petitioner sought review by

the Appeals Office.    On July 9, 1998, the Appeals Office also

denied the requests.    On September 21, 1998, petitioner filed a

petition for review of that determination with this Court.      At

the time that the petition for review was filed, petitioner

resided in Tigard, Oregon.

                             Background

     The facts may be summarized as follows.      Petitioner filed

joint Federal income tax returns with his then wife, Janet E.



     1
          Unless otherwise indicated, section references are to
the Internal Revenue Code applicable for the periods involved.
                                - 3 -

Taylor (now Janet Eggleston), for the taxable years 1984, 1985,

1986, 1987, and 1988.    On July 6, 1987, respondent's Examination

Division commenced an examination of their joint 1984 and 1985

returns.    The examination was expanded later to include the joint

returns for the 1986 through 1988 taxable years and the corporate

returns for the same periods of Highline Industrial Supply, Inc.

(Highline), a corporation wholly owned by petitioner and Ms.

Taylor.    Petitioner and Ms. Taylor were the only employees of

Highline.    Petitioner worked primarily in sales, and Ms. Taylor

primarily maintained the books and records.

     On October 13, 1988, the Examination Division referred the

case to the Criminal Investigation Division (CID).    It is

established procedure of the Internal Revenue Service that when

during his investigation a revenue agent in the Examination

Division discovers an indication of fraud, he is required to

suspend his examination and refer the case to the CID.    See

United States v. Gilpin, 542 F.2d 38, 40 (7th Cir. 1976).       CID

accepted the case on December 15, 1988, and contacted petitioner

and Ms. Taylor on April 12, 1989.    The criminal investigation

covered 5 years of the returns of the individuals and Highline.

The underlying theory of the criminal investigation was that

Highline had paid personal expenses of petitioner and Ms. Taylor

and that they had not reported that income on their Federal

income tax returns.    Highline did not maintain adequate books and
                               - 4 -

records, and the investigation essentially focused on attempting

to re-create the financial transactions of the corporation.    Ms.

Taylor, who primarily maintained the financial records, did not

cooperate with the investigation, and petitioner's cooperation

was limited.   The investigators had to issue summonses to third

parties to obtain records.

     When CID accepts a case, the special agent of CID and the

revenue agent of the Internal Revenue Service (Examination

Division) may undertake a joint investigation; the special agent,

however, controls the investigation.   Normally the revenue agent

continues to investigate the civil aspects, but the revenue agent

would have no contact with the taxpayer unless the special agent

was present.   The special agent is interested in obtaining

evidence of violations of criminal statutes.   See United States

v. Crespo, 281 F. Supp. 928, 931-932 (D. Md. 1968).   On August

19, 1991, the Examination Division placed its examination of

petitioner's liability in the "Fraud Suspense" category.   At that

time the revenue agent prepared a preliminary computation with

the understanding that the civil aspects of the case would remain

in suspense until the criminal aspects were completed.   While the

case was in "Fraud Suspense", it was decided by the District

Director that the normal period of limitations for the 1984,

1985, 1986, and 1987 tax years would be allowed to expire without
                                 - 5 -

issuing a notice of deficiency.    That action was taken after

review of the case by the Examination Division and CID.

     By letter dated February 27, 1992, petitioner was advised

that CID had recommended prosecution and had forwarded the case

to the District Counsel's Office of the Internal Revenue Service.

District Counsel reviewed the recommendation and forwarded the

case to the Tax Division, Department of Justice, on May 22, 1992.

On April 14, 1993, an indictment was returned by the Grand Jury

sitting in the U.S. District Court for the District of Oregon,

charging that petitioner and Ms. Taylor willfully attempted to

evade and defeat a large part of their income taxes for the

taxable years 1986 and 1987.   On September 29, 1993, petitioner

entered a plea of guilty to the indictment pertaining to the

taxable year 1987 (Count 2).   On November 12, 1993, petitioner

filed a motion to withdraw his plea.     That motion was denied.

Petitioner was sentenced to 3 years' probation on December 8,

1993.   Petitioner did not appeal from the sentence.

     On June 6, 1994, petitioner filed a motion in the District

Court for new trial.   That motion was denied on July 18, 1994.

On November 17, 1994, petitioner filed a motion to vacate under

28 U.S.C. section 2255 (1994).    That motion was denied on January

17, 1995.   Petitioner appealed to the U.S. Court of Appeals for

the Ninth Circuit, which affirmed the denial of relief by the

District Court.   See United States v. Taylor, 70 F.3d 121 (9th
                                - 6 -

Cir. 1995).   Subsequently, the Supreme Court denied petitioner's

petition for a writ of certiorari.      See Taylor v. United States,

551 U.S. 1222 (1996).

     On March 1, 1994, after petitioner's conviction and prior to

the so-called section 2255 proceedings, the District Counsel

notified the Examination Division that the criminal aspects had

been concluded, and the Examination Division was authorized to

proceed with the civil liability.    The revenue agent's report was

sent to petitioner on April 15, 1994.     Thereafter there were

several meetings with petitioner and the Examination Division.

In November 1994, the case was sent to the Appeals Office.     A

notice of deficiency was issued to petitioner and Ms. Taylor on

February 16, 1996, for the taxable years 1984 through 1988 after

the parties were unable to settle the matter satisfactorily.

Petitioner filed a petition with this Court at docket No. 8493-

96, and, on April 18, 1997, a stipulated decision was entered in

that case.    The petition filed herein seeks a redetermination of

the disallowance of the request for abatement of interest for the

1986 and 1987 taxable years.

                             Discussion

     Section 6404(e) provides in relevant part:

          (1) In general.--In the case of any assessment of
     interest on--

               (A) any deficiency attributable in whole or in
          part to any error or delay by an officer or employee of
                              - 7 -

          the Internal Revenue Service (acting in his official
          capacity) in performing a ministerial act, * * *

     *       *      *         *         *         *           *

     the Secretary may abate the assessment of all or any part of
     such interest for any period. For purposes of the
     proceeding sentence, 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 * * *.[2]

Section 6404(i)(1) provides further that "The Tax Court shall

have jurisdiction over any action brought by a taxpayer * * * to

determine whether the Secretary's failure to abate interest * * *

was an abuse of discretion, and may order an abatement".3

     While petitioner's application for abatement and petition

for review of respondent's denial encompass all the interest due

on the deficiencies for the 1986 and 1987 tax years, at the

hearing, and, on brief, petitioner has narrowed the scope of his

request for abatement to the period between when the criminal

investigation began (October 13, 1988, the date of the referral

to CID) to when the civil aspects resumed (April 15, 1994, the


     2
          Congress amended sec. 6404(e) in 1996 to permit
abatement of interest for "unreasonable" error and delay in
performing a "ministerial or managerial" act. Taxpayer Bill of
Rights 2 (TBOR 2), Pub. L. 104-168, sec. 301(a)(1) and (2), 110
Stat. 1452, 1457 (1996). That standard, however, applies to tax
years beginning after July 30, 1996. TBOR 2, sec. 301(c), 110
Stat. 1457.
     3
          Sec. 6404(i) also contains jurisdictional requirements
to bring such an action. Respondent has not raised any
jurisdictional bar, and the Court is satisfied that these
prerequisites have been satisfied.
                                   - 8 -

date the revenue agent's report was sent to petitioner).         In

short, the disputed period encompasses the criminal investigation

and criminal prosecution.    The record does not show any

dereliction of a specific ministerial act during the disputed

period.

     Petitioner argues that the delay during that period was the

result of a delay by employees of the Internal Revenue Service,

acting in their official capacity, in performing ministerial

acts.    See sec. 6404(e)(1)(A).       Respondent contends that the

delay was not the result of a ministerial act, and, therefore,

section 6404(e)(1)(A) does not apply.         We agree with respondent.

     The Internal Revenue Code does not define a ministerial act.

The report of the Senate Finance Committee accompanying the Tax

Reform Act of 1986, Pub. L. 99-514, 100 Stat. 2085, states:

     The committee does not intend that this provision will be
     used routinely to avoid payment of interest; rather, it
     intends that the provision be utilized in instances where
     failure to abate interest would be widely perceived as
     grossly unfair. The interest abatement only applies to the
     period of time attributable to the failure to perform the
     ministerial act.

     *         *       *           *           *         *            *

          The committee intends that the term "ministerial act"
     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. For example, 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. The IRS may define a
                                - 9 -

     ministerial act in regulations.    [S. Rept. 99-313 (1986),
     1986-3 C.B. (Vol. 3) 208-209.]

The regulations provide:

     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 and state law) is not a ministerial
     act. [Sec. 301.6404-2T(b)(1), Temporary Proced. & Admin.
     Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).]

     Petitioner argues that the refusal to continue the civil

investigation and proceeding, when the criminal investigation

commenced, was the result of a ministerial act.    Initially, we

note that the assumption that the civil investigation terminated

is incorrect.   A tax fraud investigation contains both criminal

and civil aspects.   It is only when the criminal case is

forwarded to the Department of Justice that "the criminal and

civil aspects of a tax fraud case begin to diverge."    United

States v. LaSalle Natl. Bank, 437 U.S. 298, 311 (1978).     In a

joint investigation with the Examination Division and CID, the

investigation is controlled by CID, and to that extent it may be

said that the criminal aspects dominate the investigation.     But,

even then, as the Court noted in United States v. LaSalle Natl.

Bank, supra at 311-312:    "The Government does not sacrifice its

interest in unpaid taxes just because a criminal prosecution

begins."   Moreover, the civil fraud additions to tax (see sec.
                                - 10 -

6653(b)), as a part of the civil tax liabilities, are very much a

part of the investigation.

     There is, however, a more fundamental error in petitioner's

reasoning.    The gravamen of the argument from petitioner's point

of view is that the decision to hold in abeyance the civil tax

resolution procedures is simply a ministerial act.    As we have

noted, the criminal and civil aspects of a tax fraud

investigation are inextricably intertwined.    But there is no

question that once the criminal investigation begins there is a

clear distinction between ultimate procedural avenues that each

takes, and "It has long been the policy of the I.R.S. to defer

civil assessment and collection until the completion of criminal

proceedings."     Badaracco v. Commissioner, 693 F.2d 298, 302 (3d

Cir. 1982), affd. 464 U.S. 386 (1984).

     This policy is predicated on various considerations.    The

often cited reason is potential conflict between avenues of civil

and criminal discovery if parallel civil and criminal cases

proceed.     Compare Campbell v. Eastland, 307 F.2d 478 (5th Cir.

1962), with Commissioner v. Licavoli, 252 F.2d 268 (6th Cir.

1958), affg. T.C. Memo. 1956-187.    But there are other

considerations such as where a party or witness may be put in a

situation of testifying when the testimony may be incriminating.

See United States v. Kordel, 397 U.S. 1 (1970).    There is also

the confusion inherent in two cases that are proceeding
                              - 11 -

concurrently.   It is for these reasons that generally the courts

have held the civil action in abeyance while the criminal

prosecution goes forth.   See id. at 12 n.27.   See also United

States v. Eight Thousand Eight Hundred and Fifty Dollars ($8,850)

in United States Currency, 461 U.S. 555 (1983), where the Supreme

Court held that the delay by the United States in instituting a

civil forfeiture action pending resolution of criminal charges

was reasonable.

     While the general policy of the Internal Revenue Service may

be not to proceed with the civil aspects, that policy must be

implemented in each case.   In Campbell v. Eastland, 307 F.2d at

487, a case involving civil discovery while criminal proceedings

were pending, the Court of Appeals noted:

     The very fact that there is a clear distinction between
     civil and criminal actions requires a government policy
     determination of priority: which case should be tried
     first. Administrative policy gives priority to the public
     interest in law enforcement. This seems so necessary and
     wise that a trial judge should give substantial weight to it
     in balancing the policy against the right of a civil
     litigant to a reasonably prompt determination of his civil
     claims or liabilities.

Just as a trial judge must balance the competing interests,

respondent's officers must decide whether the civil aspects in a

particular case outweigh the interests in the criminal aspects.

The decision here was made by not issuing the notice of

deficiency and allowing the normal periods of limitations to

expire.   A decision is made after an evaluation of the criminal
                              - 12 -

and civil aspects of the case and is not "the processing of a

taxpayer's case after all prerequisites to the act, such as

conferences and review by supervisors, have taken place."    Sec.

301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., supra.     Such

a decision cannot be considered a "ministerial act."

     This holding is consistent with our holding in Lee v.

Commissioner, 113 T.C.      (1999).    In Lee the taxpayer sought an

abatement of interest during the period that the case was pending

before the Court.   The tax liabilities involved in Lee arose out

of a tax shelter.   There were criminal indictments that involved

the promoters.   We rejected the taxpayer's abatement argument

noting that the mere passage of time during litigation "does not

establish error or delay by the Commissioner in performing a

ministerial act."   Lee v. Commissioner, supra (slip op. at 9).

We further found that the delay

     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 * * * necessarily required the exercise of judgment
     and thus cannot be a ministerial act. [Id.]

     Although in Lee the delay occurred after the taxpayer filed

a petition in this Court and the delay in the present case

occurred before the issuance of the notice of deficiency, this

does not appear to be a noteworthy distinction.    The timing of

the decision to defer the civil proceedings until resolution of

the criminal aspects does not detract from the fact that the
                             - 13 -

exercise of judgment is required in making such a decision.     The

decision here was not a ministerial act.    Accordingly, section

6404(e)(1)(A) is not applicable.   We, therefore, do not need to

consider whether respondent abused his discretion or whether the

delay was attributable to petitioner.

     To reflect the foregoing,



                                           Decision will be entered

                                    for respondent.
