                        T.C. Memo. 2005-138



                      UNITED STATES TAX COURT



         LAW OFFICES OF MICHAEL B. L. HEPPS, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20436-03.             Filed June 13, 2005.


     Michael Barry Loui Hepps, for petitioner.

     James B. Urie, for respondent.



                        MEMORANDUM OPINION

     MARVEL, Judge:   This matter is before the Court on

respondent’s motion for judgment on the pleadings under Rule

120(a) (motion).1   Because petitioner attached exhibits to its

response to respondent’s motion that require us to consider



     1
      All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the years in issue.
                               - 2 -

matters outside the pleadings, we shall treat respondent’s motion

as a motion for summary judgment under Rule 121.    See Rule

120(b).

     Summary judgment is a procedure designed to expedite

litigation and avoid unnecessary, time-consuming, and expensive

trials.   Fla. Peach Corp. v. Commissioner, 90 T.C. 678, 681

(1988).   Summary judgment may be granted with respect to all or

any part of the legal issues presented “if the pleadings, answers

to interrogatories, depositions, admissions, and any other

acceptable materials, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that a

decision may be rendered as a matter of law.”   Rule 121(a) and

(b); see Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520

(1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v.

Commissioner, 90 T.C. 753, 754 (1988).   The moving party bears

the burden of proving that there is no genuine issue of material

fact, and factual inferences will be read in a manner most

favorable to the party opposing summary judgment.    Dahlstrom v.

Commissioner, 85 T.C. 812, 821 (1985).

                            Background

     This is an appeal from respondent’s determination that

petitioner is not entitled to an abatement of interest on

employment taxes under section 6404 for the tax periods ending

March 31, 1998, June 30, 1998, September 30, 1998, December 31,
                               - 3 -

1998, March 31, 1999, June 30, 1999, September 30, 1999, and

December 31, 1999.   Petitioner’s principal place of business was

located in Philadelphia, Pennsylvania, when its petition in this

case was filed.

     In September 2000, petitioner discovered that its employment

taxes for the periods in issue had not been paid to the Internal

Revenue Service (the Service) due to an embezzlement.   Upon

discovering the embezzlement, petitioner and/or its principal,

Michael B. L. Hepps, entered into an agreement (installment

agreement) with the Service to make periodic payments on the

outstanding employment tax liability.    The periodic payments were

derived from, and depended upon, payments petitioner or

petitioner’s principal received monthly from a third party, and

the Service was aware of this fact.2

     On some date after the installment agreement was

implemented, the Service levied upon the third party, who

allegedly owed money to petitioner or petitioner’s principal.

Petitioner contends that the seizure was made in violation of an

understanding it had with the Service.   The seizure resulted in

the third party, whose payments were funding the installment

agreement, terminating its relationship with petitioner and/or

petitioner’s principal.   As a result, petitioner was no longer



     2
      The record is unclear as to whether the third party was
obligated to pay petitioner or petitioner’s principal.
                               - 4 -

able to make the installment payments.   Petitioner immediately

contacted the Service to negotiate lower periodic payments.

Despite several letters and telephone calls from petitioner to

the Service, however, petitioner’s collection matter was never

formally resolved by a closing agreement, offer in compromise, or

in any other manner.   Because petitioner maintained that the

interest in question is attributable to the Service’s wrongful

levy, petitioner filed a request for an abatement of interest on

the unpaid employment taxes under section 6404.3

     On June 13, 2003, respondent issued a Full Disallowance--

Final Determination (final determination), in which he denied

petitioner’s request for abatement on the grounds that “IRC

Section 6404(e)(1) does not authorize the Internal Revenue

Service to abate the assessment of interest on employment taxes.”

However, respondent’s final determination did not discuss, or

apparently consider, the possible application of section 6404(a)

to petitioner’s request for abatement.

     On November 26, 2003, petitioner’s imperfect petition

seeking a review of respondent’s failure to abate interest under

section 6404 was filed.   Because the petition did not meet the




     3
      The record for purposes of respondent’s motion does not
contain a copy of petitioner’s request for abatement and does not
disclose when petitioner requested the abatement of interest.
                                 - 5 -

requirements of Rule 281(b), we ordered petitioner to file a

proper amended petition by January 27, 2004.    On February 2,

2004, petitioner’s amended petition was filed.4

     On June 2, 2004, respondent’s motion was filed.    In his

motion, respondent contends that his determination not to abate

interest was not an abuse of discretion because, under sections

6404(e), 6211, and 6212(a) and Woodral v. Commissioner, 112 T.C.

19 (1999), he lacks the authority to abate assessments of

interest on employment taxes.    Respondent also contends that

section 6404(a) does not apply because petitioner “has not

suggested that any of the interest assessed was excessive or

miscalculated.”

     On June 28, 2004, petitioner’s response opposing

respondent’s motion was filed.    In its response, petitioner

contends that “numerous representatives of the Government have

indicated that what occurred was entirely the Government’s fault

and that the interest should be abated” and that the Service

“ought to be held to their word.”    Petitioner also denied

respondent’s contention that section 6404(a) did not apply.

     This case was scheduled for hearing at the Court’s September

7, 2004, Philadelphia, Pennsylvania, trial session.    Counsel for

both parties appeared and presented oral arguments on the motion.



     4
      Respondent does not dispute the timeliness of petitioner’s
amended petition.
                                  - 6 -

Among the arguments petitioner presented was an argument that

respondent should have abated interest under section 6404(a).

Counsel for respondent argued at the hearing that section 6404(a)

did not apply because the interest at issue was not erroneously

or illegally assessed, citing section 6404(a)(3), nor was it

excessive in amount, citing section 6404(a)(1).   Neither party

brought to the Court’s attention our Memorandum Opinion in H & H

Trim & Upholstery Co. v. Commissioner, T.C. Memo. 2003-9.

                                Discussion

I.   Abatement of Interest Under Section 6404

      A.   Section 6404(e)(1)

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

Commissioner may abate an assessment of interest on:

           (A) Any deficiency attributable in whole or
      in part to any unreasonable error or delay by an
      officer or employee of the Internal Revenue
      Service (acting in his official capacity) in
      performing a ministerial or managerial act, or

           (B) any payment of any tax described in
      section 6212(a) to the extent that any
      unreasonable error or delay in such payment is
      attributable to such officer or employee being
      erroneous or dilatory in performing a ministerial
      or managerial act.

Section 6211 defines a deficiency as the amount by which the tax

imposed by subtitle A or B or chapter 41, 42, 43, or 44 of the

Internal Revenue Code exceeds the amount of such tax shown on the

taxpayer’s return and the amount of such tax previously assessed.
                               - 7 -

Section 6212(a) authorizes the Secretary5 to issue notices of

deficiency with respect to taxes imposed by subtitle A or B or

chapter 41, 42, 43, or 44 of the Code.   These subtitles and

chapters of the Code cover taxes on income, estates, gifts,

certain qualified pension plans, and qualified investment

entities.   The Code provisions related to employment taxes are

contained in subtitle C.

     The Commissioner’s authority to abate an assessment of

interest involves the exercise of discretion, and we must give

due deference to the Commissioner’s discretion.   Woodral v.

Commissioner, supra at 23; Mailman v. Commissioner, 91 T.C. 1079,

1082 (1988).   In order to prevail, petitioner must prove that the

Commissioner abused his discretion by exercising it arbitrarily,

capriciously, or without sound basis in fact or law.    Woodral v.

Commissioner, supra at 23; Mailman v. Commissioner, supra at

1084; see also sec. 6404(i)(1); Rule 142(a).

     In Woodral v. Commissioner, supra at 25, we held that the

Commissioner lacks authority under section 6404(e) to abate an

assessment of interest on employment taxes because neither

section 6211 nor section 6212(a) mentions subtitle C.   We also


     5
      The term “Secretary” means “the Secretary of the Treasury
or his delegate”, sec. 7701(a)(11)(B), and the term “or his
delegate” means “any officer, employee, or agency of the Treasury
Department duly authorized by the Secretary of the Treasury
directly, or indirectly by one or more redelegations of
authority, to perform the function mentioned or described in the
context”, sec. 7701(a)(12)(A).
                                   - 8 -

held that because the Commissioner has no authority to abate

assessments of interest on employment taxes under section

6404(e), he cannot commit an abuse of discretion by refusing to

do so because “a person with no discretion simply cannot abuse

it.”    Id.

       Because our Opinion in Woodral is controlling, we hold that

respondent is entitled to summary judgment on petitioner’s claim

for abatement under section 6404(e).       Respondent has no authority

under section 6404(e) to abate the interest assessed on

petitioner’s unpaid employment taxes, and, consequently,

respondent did not abuse his discretion by refusing to abate the

interest in this case.

       B.     Section 6404(a)

       Petitioner also contends that respondent should have abated

interest under section 6404(a).      We construe petitioner’s

argument to be that respondent’s failure adequately to consider

section 6404(a) precludes the entry of a summary judgment.

Section 6404(a) provides as follows:

            SEC. 6404(a). General Rule.--The Secretary is
       authorized to abate the unpaid portion of the
       assessment of any tax or any liability in respect
       thereof, which--

                    (1) is excessive in amount, or
                                - 9 -

               (2) is assessed after the expiration of the
          period of limitations properly applicable thereto,
          or

               (3) is erroneously or illegally assessed.

     In Woodral v. Commissioner, 112 T.C. at 22-23, we held that

we had jurisdiction under section 6404(g) to review the

Commissioner’s failure to abate interest under all subsections of

section 6404 and that section 6404(g) does not limit our

jurisdiction to review cases under section 6404(g) to those

asserting a right to abatement under section 6404(e).

Nevertheless, in Woodral, because the taxpayers did not cite any

authority or introduce any evidence to support their claim that

the assessments of interest were excessive, erroneous, or

illegal, we held that the Commissioner did not abuse his

discretion by failing to abate the assessments of interest under

section 6404(a).   Id. at 24.

     In H & H Trim & Upholstery Co. v. Commissioner, T.C. Memo.

2003-9, which we filed on January 9, 2003, we held that a

taxpayer was entitled to a partial abatement of interest related

to the taxpayer’s employment tax liability because the Service,

in response to the taxpayer’s request for a payoff figure, failed

to inform the taxpayer of additional interest and an addition to

tax that had accrued but had not yet been assessed.   Citing

Woodral v. Commissioner, supra, we concluded that the reference

in section 6404(a) to “any tax” included employment taxes, and
                              - 10 -

that the reference in section 6404(a) to “any liability in

respect to” the tax includes interest that has accrued on the

underlying tax.   H & H Trim & Upholstery Co. v. Commissioner,

supra.   We then interpreted the term “excessive” in section

6404(a), as it relates to interest, to include a concept of

unfairness under all of the facts and circumstances.   Id.     After

examining the facts of the case, we concluded that petitioner’s

employment tax liability for one of the quarters at issue would

have been fully paid on January 15, 1997, “but for” the

Commissioner’s error, that requiring petitioner to pay interest

accrued as a result of the Commissioner’s error was unfair, and

that the interest accrual attributable to the Commissioner’s

error was therefore excessive.   We held that the Commissioner’s

determination not to abate interest for the period from January

16, 1997 through June 30, 1998, was an abuse of the

Commissioner’s discretion.

     In this case, petitioner’s argument is essentially an

argument about unfairness.   Petitioner contends that respondent’s

error in levying upon money owed to petitioner or to petitioner’s

principal caused the third party to terminate its relationship

with petitioner and/or its principal and deprived petitioner of

the income stream that was funding the installment agreement.

Petitioner also contends that representatives of respondent have

acknowledged respondent’s mistake and have even agreed that
                              - 11 -

interest should be abated but have taken the position that no

section of the Code gives respondent the authority to abate

interest under the circumstances of this case.   Respondent not

only disputes that any representative has acknowledged interest

should be abated, but respondent also contends that section

6404(a) is not applicable, apparently because petitioner did not

specifically request relief under section 6404(a).

     In order to grant summary judgment under Rule 121, we must

conclude that there is no dispute about a material fact and that

the moving party is entitled to a decision as a matter of law.

We are unable to do so.   Not only is there a dispute about the

material facts with respect to the application of section

6404(a), but our opinion in H & H Trim & Upholstery Co. v.

Commissioner, supra, raises the issue of whether respondent

improperly failed to consider section 6404(a) in determining that

petitioner was not entitled to an abatement of interest.6

     The opinion in H & H Trim & Upholstery Co. was filed on

January 9, 2003.   Respondent’s final determination was dated June


     6
      Respondent’s only contention with respect to sec. 6404(a)
is that he did not have to consider it because petitioner did not
specifically request relief under sec. 6404(a). We do not
believe that respondent’s excuse is adequate. Petitioner’s
petition and its response to the motion allege facts that focus
on the unfairness of respondent’s determination not to abate
interest, even though they do not specifically mention sec.
6404(a). Moreover, petitioner alleged in his petition that he
was entitled to relief under sec. 6404, and in his response to
the motion, he specifically denied respondent’s allegation that
sec. 6404(a) did not apply.
                              - 12 -

13, 2003.   Neither party brought the opinion in H & H Trim &

Upholstery Co. to our attention in either its motion papers or at

the hearing.   Our research has not located any other case that

has interpreted section 6404(a) and applied it to abate interest

on an unpaid employment tax liability.   Under the circumstances,

it is reasonable to conclude that neither party has considered

how the opinion in H & H Trim & Upholstery Co. might affect the

application of section 6404 to the facts of this case.     The

parties should have the opportunity to develop the facts,

consider how the Memorandum Opinion in H & H Trim & Upholstery

Co. affects the legal analysis, and discuss whether this case may

be resolved without the necessity of a trial.

      Although we shall deny respondent’s motion with respect to

section 6404(a) for the reasons stated above, we caution

petitioner that it has the burden of introducing credible

evidence to establish that the accrual and assessment of some

part of the interest at issue in this case was unfair and

therefore excessive.7

II.   Conclusion

      We shall grant respondent’s summary judgment motion with

respect to petitioner’s abatement claim under section 6404(e).



      7
      In H & H Trim & Upholstery Co. v. Commissioner, T.C. Memo.
2003-9, the taxpayer proved that the interest that was abated
under sec. 6404(a) would not have accrued “but for” the
Commissioner’s mistake.
                             - 13 -

However, because respondent did not adequately consider section

6404(a) in making his final determination that petitioner was not

entitled to an abatement of interest under section 6404 and

because there is a dispute regarding the material facts, we are

unable to conclude that respondent is entitled to summary

judgment with respect to section 6404(a).    See H & H Trim &

Upholstery Co. v. Commissioner, T.C. Memo. 2003-9.

     To reflect the foregoing,

                                      An appropriate order

                                 will be issued.
