                        T.C. Memo. 2000-369



                      UNITED STATES TAX COURT



              LARRY D. & GAIL SCOTT, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3509-99.                   Filed December 7, 2000.



     Larry D. & Gail Scott, pro sese.

     Susan Smith Canavello, for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION

     DAWSON, Judge:   This case was assigned to Special Trial

Judge Lewis R. Carluzzo pursuant to section 7443A(b)(5) and Rules

180, 181, and 183.1   The Court agrees with and adopts the opinion

of the Special Trial Judge, which is set forth below.


     1
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect at the time that the petition was
filed in this case. Rule references are to the Tax Court Rules
of Practice and Procedure.
                                - 2 -

               OPINION OF THE SPECIAL TRIAL JUDGE

     CARLUZZO, Special Trial Judge:     On September 16, 1998,

respondent issued a notice of final determination denying

petitioners' request to abate interest on income tax deficiencies

for the years 1989 and 1990.    In response to the notice,

petitioners filed a timely petition pursuant to section 6404(i).

     The issue for decision is whether respondent’s failure to

abate interest assessed on petitioners’ 1989 and 1990 income tax

deficiencies was an abuse of discretion.

                         FINDINGS OF FACT

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

Petitioners are husband and wife.    At the time the petition was

filed, petitioners resided in Lucedale, Mississippi, and their

net worth did not exceed $2 million.    References to petitioner

are to Larry D. Scott.

     Petitioner is and was during all relevant times the sole

proprietor of a general contracting business (the business).     A

portion of petitioners’ residence was used as an office in

connection with the business.    During 1989 and 1990, the income

petitioner earned and the expenses he incurred in connection with

the business were reported on Schedules C, Profit or Loss From

Business (Sole Proprietorship), included with the joint Federal

income tax returns timely filed by petitioners for those years.
                              - 3 -

The specific items reported on the Schedules C are as follows:

                                        1989                1990

Income:

  Gross receipts                      $459,553         $480,035
  Cost of goods sold                   358,976          363,056
  Gross income                         100,577          116,979

Deductions:
  Advertising                             769             1,821
  Commissions and fees                    -0-            29,650
  Car and truck expenses               15,824              -0-
  Insurance                             5,678             5,837
  Interest (mortgage)                     -0-             7,540
  Interest (other than mortgage)        9,101             8,135
  Legal and professional                3,065             7,539
  Office expenses                       3,943            14,254
  Rent (other business property)        1,493              -0-
  Supplies                              2,782             2,733
  Taxes                                   689               790
  Travel                                  -0-            19,612
  Meals and Entertainment                 -0-               568
  Utilities                             4,106             9,071
Other Expenses
  “Sub”                                65,565                -0-
  “Bk Chg”                                353                 201

     Total                            113,368           107,751

Net profit (loss)                     (12,791)              9,228


On each Schedule C, petitioners responded “No” to the question

“Are you deducting expenses for the business use of your home?”,

although it appears that at least portions of certain deductions

relate to the use of petitioners’ residence in connection with

the business.

     The net loss from the business is the only item taken into

account in the negative adjusted gross income reported on
                               - 4 -

petitioners’ 1989 Federal income tax return; consequently, no

section 1 income tax liability is reported on that return.    Their

1989 return also reflects a section 1401 self-employment tax of

$208.32, and an earned income credit of $222, resulting in a

refund claim for $13.68.

     The net profit from the business and a $12,791 “NOL” are the

items included in the negative adjusted gross income reported on

petitioners’ 1990 Federal income tax return.   As with 1989, no

section 1 income tax is listed on the return, but petitioners

reported a section 1401 self-employment tax of $1,303.87, which

is partially offset by an earned income credit of $953.

     Petitioners were first contacted in writing by respondent

with respect to the examination of their 1989 and 1990 Federal

income tax returns by letter dated June 6, 1991.   Revenue Agent

Judy Pearson (Ms. Pearson) conducted the examination.   Ms.

Pearson met with petitioner and/or their return preparer, Carol

Reid (Ms. Reid), on several occasions and issued several

information document requests to petitioners during the course of

the examination.   It appears that the examination focused

primarily upon deductions claimed on the Schedules C.   Because

certain of those deductions related to payments made to

petitioners’ son, Ms. Pearson extended her examination to include

the 1989 and 1990 Federal income tax returns of petitioners’ son.
                                - 5 -

     Ms. Pearson’s examination of petitioners’ returns was

briefly interrupted for work-related training from March 16,

1992, to April 17, 1992.   She also worked on other examinations

from April 17, 1992, to June 13, 1992.   A closing conference with

petitioner, Ms. Reid, and petitioners’ son was held on June 17,

1992.   The examination was closed with the issuance of the

revenue agent’s report, dated June 26, 1992 (RAR).

     Numerous adjustments are contained in the RAR.   The cost of

goods sold claimed for each year is reduced, as are a number of

deductions.   Deficiencies of $14,694 and $16,083 for the years

1989 and 1990, respectively, are proposed in the RAR.

     By Report Transmittal dated July 6, 1992, (the T-Letter) the

RAR was forwarded for review.   In the T-Letter, Ms. Pearson

recommended that an inadequate records notice be issued to the

petitioners because petitioners’ books and records were not

sufficiently detailed.   According to the T-Letter, business

expenses could not be distinguished from personal expenses

because petitioners kept business and personal records in one set

of books.   The T-Letter also notes that petitioners did not

maintain a log to verify business use of an automobile.

     Petitioners did not agree with the proposed adjustments to

their income tax returns and, on August 5, 1992, their authorized

representative, C. Ray Hunter (Mr. Hunter), requested a hearing

with an Appeals Officer.   By letter dated September 10, 1992,
                               - 6 -

Appeals Officer John Dennis Smith (Mr. Smith) from respondent’s

Appeals Office in Jackson, Mississippi (Appeals) advised

petitioners that he had been assigned their case.   However, Mr.

Smith returned the case to the examination division on November

12, 1992, for further development.

     Revenue Agent Phyllis Shearer (Ms. Shearer) was assigned to

resume the examination.   She met with Mr. Hunter on December 11,

1992, and had several telephone conversations with him after

their meeting.   At the conclusion of her examination, Ms. Shearer

prepared a revised revenue agent’s report (the revised RAR).    In

the revised RAR deficiencies of $9,032 and $11,853 for the years

1989 and 1990, respectively, are proposed.   Petitioners did not

agree with the proposed adjustments contained in the revised RAR

and requested that the case be sent back to Appeals.    On March

19, 1993, Ms. Shearer returned the case to Mr. Smith.    On April

8, 1993, Mr. Smith notified petitioners that the case had been

returned to him.

     By letter dated April 14, 1993, Mr. Smith scheduled a June

14, 1993, conference with Mr. Hunter, but Mr. Hunter failed to

appear.   Petitioners retained a different representative, Ernest

D. Kelly (Mr. Kelly), sometime thereafter.   Because Mr. Kelly’s

office was in New Orleans, Louisiana, on June 25, 1993,

petitioners requested that their case be transferred to the New

Orleans Appeals Office.   Respondent determined that the case did
                                - 7 -

not meet the criteria for transfer of jurisdiction so the

transfer request was denied.

     Mr. Smith met with petitioner and Mr. Kelly on August 20,

1993.   At that meeting, Mr. Smith requested that petitioners

provide certain documents.    Some of the requested documents were

received by Mr. Smith on September 8, 1993.     Due to his inventory

of cases, Mr. Smith decided to put petitioners’ case aside until

he received the additional information requested from

petitioners.   Mr. Smith did not work on petitioners’ case from

December 1, 1993, through January 10, 1994, when he either was on

leave or attending a staff meeting.

     On February 26, 1994, petitioners once again requested that

their case be transferred to New Orleans, and that request was

denied.   On April 26, 1994, Appeals responded to a congressional

inquiry regarding petitioners’ request to transfer jurisdiction

to the New Orleans Appeals Office.      In the letter, Appeals stated

that while the agency manual sets forth “limited exceptions to

permit the transfer of jurisdiction to another appeals office”,

petitioners did not “meet the exceptions to transfer jurisdiction

to the New Orleans Appeals Office.”     Appeals further noted in the

letter that petitioners had been advised of this fact on several

occasions.

     Mr. Smith never received the additional information

requested from petitioners.    On September 13, 1994, he advised
                               - 8 -

petitioners by letter that there was no basis for changing the

proposed adjustments made in the revised RAR.    He advised

petitioners of their options to extend the period of limitations

or litigate the matter in United States Tax Court or District

Court.   The case was forwarded to the Birmingham Appeals Office

with Mr. Smith’s recommendations regarding the proposed

adjustments.   On November 30, 1994, respondent issued a notice of

deficiency for the 1989 and 1990 tax years based upon the

proposed adjustments made in the revised RAR.    In addition, in

the notice of deficiency, respondent determined that for each

year petitioners were liable for an accuracy-related penalty

under section 6662(a).

     On February 27, 1995, a petition for the redetermination of

the deficiencies determined in the above-mentioned notice of

deficiency was timely filed, pro sese (the deficiency

proceeding).   Petitioners designated New Orleans as the place of

trial in the deficiency proceeding.    Initially, the deficiency

proceeding was assigned to one of respondent’s attorneys in

Birmingham, Alabama.   On May 8, 1995, after the petition had been

answered, the deficiency proceeding was transferred to senior

attorney Emile L. Hebert III (Mr. Hebert), one of respondent’s

attorneys located in New Orleans.
                                - 9 -

     Mr. Hebert sent petitioners what is commonly referred to as

a "Branerton letter"2 on November 21, 1995, and received a reply

from petitioners' representative on December 5, 1995.    In early

January 1996, following a formal Request for Production of

Documents, dated December 27, 1995, petitioners produced to Mr.

Hebert a number of documents, including checks, contracts,

invoices and spreadsheets used in the preparation of petitioners’

1989 and 1990 returns.    In the cover letter accompanying the

documents, petitioners’ representative also represented that

information related to the car and truck expenses would be

produced the following week.

     By notice dated October 5, 1995, the deficiency proceeding

was set for trial at the Trial Session of the Court scheduled to

commence in New Orleans on March 11, 1996.    Prior to trial, the

parties agreed to a basis of settlement.    By a stipulated

decision entered in the deficiency proceeding on April 23, 1996,

deficiencies of $5,092.68 and $7,842.13, for 1989 and 1990,

respectively, (the deficiencies) and no additions to tax under

section 6662(a) were redetermined by the Court.

     In early November 1997, petitioners submitted to respondent

a Form 843, Claim for Refund and Request for Abatement, in which

petitioners requested an abatement of all of the interest that




     2
         See Branerton Corp. v. Commissioner, 61 T.C. 691 (1974).
                              - 10 -

had accrued on the deficiencies.   Petitioners’ request was denied

by letter dated May 27, 1998, because, according to the letter:

     There was no ministerial act delaying completion of the
     case. * * * [Petitioners] did not agree at the
     examination level or at the appeals level. Allowing
     the * * * [petitioners] to present “new facts” in their
     behalf and consider their request to have the case
     transferred contributed to the span of time in
     resolving their case.

     Petitioners filed a protest and after reconsidering

petitioners' abatement of interest claim, on September 16, 1998,

respondent issued a Notice of Final Determination upholding the

denial of their interest abatement claim.   The petition in this

case was timely filed, pro sese, on February 22, 1999.

                              OPINION

     Subject to exceptions not relevant here, interest on a

deficiency begins to accrue on the due date of the return and

continues to accrue, compounding daily, until payment is made.

See secs. 6601(a), 6622(a).

     The Commissioner has the authority to abate the assessment

of interest on a deficiency if the accrual of such interest is

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

the Internal Revenue Service in performing a ministerial act.3


     3
       In 1996, section 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
                                                   (continued...)
                              - 11 -

See sec. 6404(e)(1).   A ministerial act means a procedural or

mechanical act that does not involve the exercise of judgment or

discretion.   See Lee v. Commissioner, 113 T.C. 145 (1999); sec.

301.6404-2T, Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163

(Aug. 13, 1987).   Subject to various procedural and other

requirements set forth in the statute and not here in dispute,

the Court has jurisdiction over any action brought by a taxpayer

to determine whether the Commissioner’s failure to abate interest

was an abuse of discretion.   See sec. 6404(i); Lee v.

Commissioner, supra.

     In their petition, petitioners contend that they are

entitled to an abatement of interest because of “Excessive delays

by the Internal Revenue Service on assessment of [their] tax

liability.”   Petitioners do not identify any specific acts on

respondent’s part that would constitute “ministerial acts”

entitling them to abatement of interest, nor is it clear from the

petition or petitioners’ presentation at trial over what specific

period of time the “excessive delays” occurred.

     In their brief, petitioners appear to focus on the

examination and appeals phases of the deficiency proceeding,

which covers the 3-year span between December 6, 1991 and



     3
      (...continued)
beginning after July 30, 1996; therefore, the amendment is
inapplicable here. See Woodral v. Commissioner, 112 T.C. 19, 25
n.8 (1999).
                               - 12 -

November 30, 1994.   Petitioners contend that there were “grossly

unfair” delays by respondent during this time; however, the brief

does not identify any actions on respondent’s part that would

constitute “ministerial acts” during this time.     It appears to us

that petitioners consider themselves entitled to the relief

sought based merely upon the time that transpired from the date

the examination began until the date the stipulated decision

document was entered by this Court.     The mere passage of time,

however, in and of itself does not suggest an unreasonable delay

or error caused by a ministerial act on respondent’s part.     See

Cosgriff v. Commissioner, T.C. Memo. 2000-241 (citing Lee v.

Commissioner, supra at 150).

     Nevertheless, we have examined the 5-year span starting from

respondent’s first contact with petitioners regarding the

examination of their 1989 and 1990 returns on June 6, 1991,4

until the deficiency proceeding was concluded by the entry of a

stipulated decision document on April 23, 1996.     In doing so, we

find no evidence of any specific ministerial act on respondent’s

part that caused an unreasonable delay in the progress of the

examination through the deficiency proceeding.     The length of



     4
       Under section 6404(e), a taxpayer is entitled to abatement
of assessed interest on a deficiency only for any period starting
“after the Internal Revenue Service has contacted the taxpayer in
writing with respect to such deficiency”. Sec. 6404(e)(1).
Accordingly, interest accrued on petitioners’ deficiency prior to
June 6, 1991, is not abatable. See sec. 6404(e).
                              - 13 -

time taken by the officers and employees of the Internal Revenue

Service to conduct the examination, appeals and settlement

process was not due to an error or delay in performing a

ministerial act.   That being so, it follows that respondent did

not abuse his discretion in denying petitioners' claim for

abatement of interest on Federal income tax deficiencies for 1989

and 1990.

     To reflect the foregoing,

                                         Decision will be

                                    entered for respondent.
