                        T.C. Memo. 2004-125



                      UNITED STATES TAX COURT



                  CHARLES DURHAM, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5185-02.               Filed May 25, 2004.


     Maurice W. Gerard, for petitioner.

     Caroline R. Krivacka, for respondent.



                        MEMORANDUM OPINION


     HOLMES, Judge:   Section 6404(e) of the Code1 gives the

Commissioner power to abate interest that has accrued on unpaid



     1
       Unless otherwise indicated, all section references are to
the Internal Revenue Code; Rule references are to the Tax Court
Rules of Practice and Procedure; Constitution references are to
the Constitution of the United States.
                                 - 2 -

taxes.     In 1996, Congress amended the section to allow abatement

more often, but made the amendment effective only for interest

accruing on tax deficiencies or payments for tax years beginning

after the date of enactment--July 30, 1996.    Petitioner, Charles

Durham, was under audit for his 1992-94 tax years when the

amendment was enacted.    He wants to take advantage of the

amendment’s terms, and so challenges the constitutionality of its

effective date.    The case comes to us on cross-motions for

summary judgment.

                              Background

       Before the 1996 amendment, the Commissioner could abate

interest under section 6404(e) only when interest had accrued

because of an IRS employee’s error or delay in performing a

“ministerial act.”    Sec. 6404(e) (1994) (“old section 6404(e)”);

see Woodral v. Commissioner, 112 T.C. 19, 24-25 (1999).       But

“ministerial act” was narrowly defined as “a procedural or

mechanical act that does not involve the exercise of judgment or

discretion....”    Proced. & Admin. Regs., sec. 301.6404-2T(b)(2),

Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,

1987).2    This definition captured only such bureaucratic snafus

as delays in transferring a case between offices or in issuing an

already agreed-upon notice of deficiency.     Id. Examples (1) and

(2).


       2
       The identical definition carried over to the final
regulations in effect for tax years commencing after July 30,
1996. Proced. & Admin. Regs., sec. 301.6404-2(b)(2).
                               - 3 -

     Congress came to think that other sorts of delays called for

relief from the relentless accrual of interest.    The 1996

amendment (“new section 6404(e)”) therefore empowered the

Commissioner to abate interest caused by any “unreasonable error

or delay by an officer or employee of the Internal Revenue

Service * * * in performing a ministerial or managerial act.”

Taxpayer Bill of Rights 2, Pub. L. 104-168, sec. 301, 110 Stat.

1452, 1457 (1996) (emphases added).    “Managerial” acts include

such mistakes as “the temporary or permanent loss of records”

and, more generally, mistakes in the “exercise of judgment or

discretion relating to management of personnel.”    Proced. &

Admin. Regs., sec. 301.6404-2(b)(1).

     Petitioner’s problems began in April 1995, when the IRS

started to audit his 1992 tax return.    The IRS later expanded the

audit to his 1993 and 1994 returns.    The audit went slowly: in

January 1996, the IRS reassigned the first revenue agent working

on this case to other matters and didn’t put a second agent on it

until May 1996.   A year later, the case went to the IRS’s Appeals

Office.   The Appeals officer concluded that the audit needed

additional work and returned the case to the district office in

November 1997, where it went into suspended animation.

Respondent blames this on petitioner’s attorney, and petitioner

blames it on respondent’s personnel assignments and mishandling

of files.   Work finally resumed in early 1999, and the parties
                                - 4 -

closed the case in March 1999 with petitioner’s agreeing to the

assessment and collection of deficiencies for 1992-94.

     In October 1999, petitioner asked respondent to abate at

least part of the accrued interest, citing respondent’s delays in

handling the case.    Respondent issued his final determination in

August 2001.    It completely disallowed petitioner’s request, and

this appeal followed.

     Petitioner has at all relevant times been a resident of

Tennessee, and this case was originally set to be tried in

Knoxville.    Before trial, however, both parties moved for summary

judgment.    Respondent’s motion was simple:   Petitioner’s

allegations of IRS errors all involved “managerial” acts.

Proced. & Admin. Regs., sec. 301.6404-2(b)(1).     Section 6404(e)

allows respondent to abate interest for delays caused by

managerial acts, but only for tax years after 1996.     The years

involved here were 1992-94.    Therefore, respondent could not

abate interest.

     Petitioner’s motion agrees with respondent’s, right up to

the “therefore”.    He argues that the effective date in the

statute is trumped by the Constitution, whose guarantees of equal

protection make an effective date based on when a tax year

commenced, rather than when IRS misfeasance occurred,
                               - 5 -



unconstitutional.   He concedes, as he stated in his last filing

with the Court, that “if the effective date . . . was Congress’

intent and does not violate Petitioner’s constitutional rights,

then the acts taken by Respondent would be within the statutory

authority.”

     The parties thus agree that, for purposes of these motions,

delays occurred in respondent’s handling of the case, and those

delays were due to “managerial” acts.   The parties also agree

that petitioner would not be entitled to an abatement of interest

under old section 6404(e), but would be under new section

6404(e).   We therefore need not untangle the parties’

contradictory positions on who and what caused how much delay;

and the case is ripe for decision on this disputed, and

apparently novel, legal issue.3




     3
       Petitioner’s concession also frees us of having to analyze
whether some of the delay was the result of what we might
consider ministerial acts under the old temporary regulations.
See Palihnich v. Commissioner, T.C. Memo. 2003-297 (IRS’s 11-
year failure to process amended returns after losing them was
“ministerial act” under sec. 301.6404-2T(b)(1), Temporary Proced.
& Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987)).
                               - 6 -

                            Discussion

     Although petitioner makes passing efforts to argue that the

effective date doesn’t mean what it says4 or fails to correctly

reflect Congress’s intent,5 his main argument is grounded in

equal protection law.6   He contends that all victims of

managerial errors committed after July 30, 1996 should be treated

equally; and that Congress, by applying new section 6404(e)'s

interest abatement provisions only to tax years beginning after


     4
       He suggests that the effective date provision was an
oversight by Congress that is capable of judicial revision.
However, we note that new section 6404(e)'s effective date is but
one of many in that section of Taxpayer Bill of Rights 2--notably
including the one governing the right to judicial review
(formerly section 6404(g), now section 6404(h)), Pub. L. 104-168
sec. 302 (effective date based on time of request for interest
abatement). Even if we had a general power of judicial
correction, this close proximity of different effective dates
shows that Congress did pay attention to such provisions and was
capable of making a different choice if it had wished.
     5
       Petitioner argues that applying the effective date as
written would thwart Congress’s clearly expressed intent that
taxpayers not suffer the ill effects of bureaucratic gaffes by
the IRS. But his only evidence of this intent is a quote that
the purpose of amending section 6404 was “to provide for
increased protections of taxpayer rights in complying with the
Internal Revenue Code . . . .” H. Rept. 104-506 at 22 (1996),
1996-3 C.B. 49, 70. So general a statement of legislative
purpose is insufficient to overcome the plain meaning of the
amendment’s effective date.
     6
       The Due Process Clause of the Fifth Amendment provides
guarantees against the Federal Government that are essentially
identical to those provided against the States by the Fourteenth
Amendment’s Equal Protection Clause. Bolling v. Sharpe, 347 U.S.
497, 499 (1954).
                                 - 7 -

that date, unfairly discriminated between two classes of

similarly situated taxpayers.

     He asks us to imagine two taxpayers, A and B.    A has a

deficiency for the 1996 tax year, and B has one for the 1997 tax

year.   A and B are dealing with the same IRS agent, who while

handling their cases is sent for a prolonged bout of training

(clearly a managerial act) that causes unreasonable delays in the

resolution of both cases.   If the effective date of new section

6404(e) is constitutional, however, only B would be allowed an

interest abatement, despite A and B’s both being in apparently

identical predicaments.    Petitioner contends that no justifica-

tion exists for this disparate treatment.

     Petitioner faces daunting odds, though, because such fine

distinctions are common in the law, and particularly common in

tax law.   Courts have long held that “[l]egislatures have

especially broad latitude in creating classifications and

distinctions in tax statutes.”     Regan v. Taxation With

Representation of Wash., 461 U.S. 540, 547 (1983).    And the

burden is on the taxpayer to negate “every conceivable basis

which might support it.”    Id. at 547-548.

     This judicial deference flows from a recognition that--as a

practical matter--Congress will often have to draw distinctions

between different taxpayers who seem in some ways to be in
                                - 8 -

similar positions.    “No scheme of taxation, whether the tax is

imposed on property, income, or purchases of goods and services,

has yet been devised which is free of all discriminatory impact.”

San Antonio Indep. Sch. Dist. v. Rodriguez, 411 U.S. 1, 42

(1973).    As with laws granting economic benefits, drawing dis-

tinctions “inevitably requires that some persons who have an

almost equally strong claim to favored treatment be placed on

different sides of the [same] line . . . .”     FCC v. Beach Com-

munications, Inc., 508 U.S. 307, 315-316 (1993).7    Yet courts

have repeatedly held that these distinctions do not violate the

Constitution’s guarantee of equal protection.    Instead they re-

flect Congress’s exercise of its legitimate prerogative to enact

laws with an eye to their practical administration and cost to

the fisc.

     Petitioner’s argument is thus defective in its implicit

premise that distinctions drawn in tax legislation be entirely

logical.    This is not to say that Congress has unbridled

authority to selectively tax the citizenry, but only that courts



     7
       It might be possible to review new section 6404(e)’s
constitutionality under precedents involving the granting of
economic benefits, instead of those imposing a tax. But this
would have little impact on the analysis, and none on the result.
Ultimately, both “economic benefit” cases and tax classification
cases are subject to “rational basis” review. See, e.g., N.Y.
Rapid Transit Corp. v. City of New York, 303 U.S. 573, 578
(1938).
                                - 9 -

will uphold classifications in tax legislation if they have any

rational basis--unless they impinge a fundamental right or use a

suspect classification.   See Hamilton v. Commissioner, 68 T.C.

603, 606 (1977).   If this case featured one of those classifica-

tions, it would trigger a different kind of scrutiny.   As the

Supreme Court noted in Regan, “The case would be different if

Congress were to discriminate invidiously in its subsidies in

such a way as to aim at the suppression of dangerous ideas”

(internal citations omitted).   461 U.S. at 548.   See also Hooper

v. Bernalillo County Assessor, 472 U.S. 612, 623 (1985) (greater

scrutiny may be required when tax distinctions are made on the

basis of durational residence requirements).

     Petitioner does not argue that Congress was impinging on any

fundamental right or making any suspect classification, but only

that new section 6404(e)'s effective date lacks any rational

basis.   And although petitioner’s is the first challenge to the

constitutionality of this particular part of the Code, history

shows that few “rational basis” challenges succeed--the deference

courts pay to legislatures when reviewing any statute for a

rational basis being a “paradigm of judicial restraint,” Beach

Communications, 508 U.S. at 314.   While there are even tax laws

struck down under rational basis review, e.g., Allegheny

Pittsburgh Coal Co. v. County Commn. of Webster County, 488 U.S.
                              - 10 -

336 (1989), petitioner’s problem is that any rational basis--

whether articulated by Congress or hypothesized by a court--will

suffice.8

     One obvious rational basis for new section 6404(e)’s

effective date is simple administrative convenience.   In enacting

new section 6404(e), Congress needed to define the situations

that would and would not be subject to its provisions.   Taking

into account that income taxes are levied on an annual basis, it

was rational for Congress to restrict the amendment’s application

by tax year, limited to liabilities for tax years beginning after

the date of enactment and so giving the IRS some time to adjust

its own administrative routine at a lower cost to the Government.

Considerations of administrative convenience have long been

recognized as a valid reason for legislative line drawing.    See

N.Y. Rapid Transit, 303 U.S. at 580-581; Carmichael v. S. Coal &

Coke Co., 301 U.S. 495, 511 (1937).    We need not, indeed we must

not, engage in judicial second-guessing of such a legislative

decision:   “The fact that another reasonable classification or


     8
       Courts have traditionally granted even greater deference
to distinctions drawn by tax laws than they have to distinctions
drawn by laws in other “rational basis” areas. See, e.g., Kelso,
“Equal Protection After the Rational Basis Era: Is it Time to
Reassess the Current Standards of Review?”, 4 U. Pa. J. Const. L.
225, 230-231 (2002) (recognizing that there exists a “second-
order” rational review more stringent than the one applied in
Allegheny Pittsburgh Coal).
                              - 11 -

even more reasonable classification exists does not render

violative of due process the classification Congress has chosen.”

Hamilton, 68 T.C. at 608.   Because we cannot say that new section

6404(e)'s effective date is without a rational basis,



                                    An order and decision will be

                               entered granting respondent’s, and

                               denying petitioner’s, motion

                               for summary judgment.
