                        T.C. Memo. 2001-323



                      UNITED STATES TAX COURT



     WILLIAM B. BERRY AND MARJORIE S. BERRY, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6786-00.                   Filed December 28, 2001.



     Marcia Allen Broughton, for petitioners.

     Julia L. Wahl, for respondent.



                        MEMORANDUM OPINION


     DAWSON, Judge:   This case was assigned to Special Trial

Judge Daniel J. Dinan pursuant to the provisions of section

7443A(b)(5)and Rules 180, 181, and 183.1     The Court agrees with



     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.
                                 - 2 -

and adopts the opinion of the Special Trial Judge, which is set

forth below.

                 OPINION OF THE SPECIAL TRIAL JUDGE

     DINAN, Special Trial Judge:     Respondent determined that

petitioners are not entitled to an abatement of interest on

Federal income taxes for the period January 1, 1992, through

November 5, 1998, relating to their 1983 through 1986 and 1988

through 1991 taxable years.    The only issue for decision is

whether respondent abused his discretion in failing to abate the

assessment of interest.

                              Background

     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 in this case, petitioners resided in Vero Beach,

Florida, and neither petitioner had an individual net worth

exceeding $2 million.

     In the years 1983 through 1985, petitioners invested a total

of $150,000 in a limited partnership known as Green Leasing

Associates.    Green Leasing was organized and marketed by Kent

Klineman or an affiliated entity and by CIGNA Securities, a

division of Connecticut General Life Insurance Co.    Green Leasing

was one of four partnerships which made up another partnership

known as Madison Leasing.    These partnerships had over 100
                                - 3 -

partners in total.    Petitioners were notified by respondent on

May 9, 1988, that an examination of Green Leasing was underway

with respect to taxable year 1984.

       From August 1990 through November 1991, petitioners received

several items of correspondence from CIGNA explaining the status

of respondent’s ongoing examination of Green Leasing and the

other partnerships.    This correspondence incorporated analysis by

the accounting firm Coopers & Lybrand.    The first letter

petitioners received, dated August 22, 1990, described a “worst

case” outcome to settlement negotiations.    The letter

specifically stated that negotiations were ongoing and that

petitioners should not expect any eventual settlement offer to

contain the same terms.

       Petitioners filed amended Federal income tax returns for the

taxable years 1983 through 1987 in December 1990 and for the

taxable years 1988 and 1989 in January 1991.    They paid the

additional tax and interest shown thereon at the time they filed

the amended returns.    The IRS processed the amended returns

reporting tax due (1983 through 1985) and assessed the reported

tax.    The IRS did not process those showing refunds (1986 through

1989) because of the unresolved issues relating to Madison

Leasing.    Petitioners filed the amended returns partially in

response to this Court’s opinion in Thornock v. Commissioner, 94

T.C. 439 (1990).
                               - 4 -

     The correspondence from CIGNA which petitioners received

after filing the amended returns contained information regarding

the ongoing negotiations.   In addition, the correspondence

contained language implying that a settlement was currently

available, and that individual partners had begun entering into

final settlements with the IRS.   One such letter, dated August

19, 1991, stated:

     The number of inquiries [directed to the IRS regarding
     settlement, sent pursuant to an earlier letter from CIGNA]
     has prompted the IRS to request that we clarify what * * *
     [the partners] view as the limitations of their involvement
     in individual cases. Essentially, investors are requested
     to contact the IRS by mail only after they have made the
     decision to pursue the proposed settlement. * * * Those who
     do not have a docketed case may either wait for the local
     IRS Service Center to contact them with the settlement
     offer, or simply file amended tax returns which reflect the
     terms of the settlement * * * .

However, the letters also stated that the IRS was dealing first

with those cases which had been docketed in this Court, followed

by those which had not (those involving later tax years).     As of

October 29, 1991, investors were informed that settlement offers

for nondocketed cases “should be communicated within the next few

months.”   Petitioners did not have a case docketed in this Court.

Because no offer had been made directly to petitioners by the

IRS, petitioners’ accountant, William J. Quinn II, wrote to the

IRS on December 3, 1991, and again on January 22, 1992,

requesting a copy of the settlement offer which he had learned

about through the correspondence from CIGNA.   Petitioners
                                 - 5 -

received no immediate response.    A letter dated May 7, 1992, from

Coopers & Lybrand to a CIGNA vice president states that

settlements were still being entered into between the IRS and

taxpayers with docketed cases.

     The IRS revenue agent assigned to audit Madison Leasing for

the taxable years 1983 through 1987 completed his examination

with respect to the first year on March 29, 1988, and with

respect to the final year on April 2, 1991.   On January 28, 1993,

a proposed notice of final partnership administrative adjustment

(FPAA) pertaining to Madison Leasing for taxable years 1983

through 1987 was completed and submitted for approval to IRS

Regional Counsel.   The finalized FPAA was issued on April 26,

1993.   On July 19, 1993, a petition was filed in this Court

seeking review of respondent’s determinations made in the FPAA.

A decision was entered in that case by the Court upon

respondent’s motion on July 28, 2000.

     The Madison Leasing examination was assigned to Appeals

officer Marco Minervini in October 1993.   At that time, Mr.

Minervini was instructed to offer a settlement to the partners of

four partnerships making up Madison Leasing, including Green

Leasing.   In addition to Madison Leasing, Mr. Minervini was

working on other Klineman-related partnerships which altogether

comprised more than 1,000 individual partners.   Over the ensuing

months, Mr. Minervini worked on the settlement package fairly
                               - 6 -

steadily, coordinating with IRS officials and counsel and with

representatives of the partnerships.    He was instructed to begin

extending the settlement offer to individual partners in August

1995.

     Petitioners--along with other partners of Green Leasing--

were sent a letter from the IRS dated November 30, 1995,

extending the final settlement offer.   Petitioners accepted this

offer by letter dated January 24, 1996.    The IRS then sent

petitioners an initial proposed closing agreement on August 2,

1996, incorporating the terms of the settlement offer.    A revised

closing agreement--resulting from changes made because of

taxpayer inquiries--followed from the IRS on November 19, 1996.

This revised agreement was executed by petitioners on December 5,

1996, and for respondent on May 9, 1997.    Thereafter, also in May

1997, the IRS in New York transmitted the executed closing

agreement to the Atlanta Service Center--the IRS service center

covering petitioners at that time--for determination of

petitioners’ tax liabilities resulting from the execution of the

agreement.

     After the closing agreement was transmitted to Atlanta,

negotiations began between the IRS and petitioners.    The IRS sent

petitioners initial calculations of their tax liabilities on or

around August 13, 1997.   Thereafter, petitioners’ accountant sent

the IRS his own proposals, questions, and objections to the
                                - 7 -

changes being asserted with respect to most of the taxable years

under examination.   The correct tax liabilities for all of the

years were contained in final determinations sent on or before

October 19, 1998.    Although the terms of the settlement remained

substantially the same as those communicated to petitioners in

1991, the overall correct tax liability was in an amount greater

than Mr. Quinn had anticipated on the basis of his understanding

of those terms at that time.

     Before resolution of the issues with respect to all the

years involved in the settlement, the IRS began to collect

assessed tax liabilities.   On January 21, 1998, the IRS levied

upon petitioners’ bank account in connection with taxable years

1985, 1986, 1988, and 1989.    The levy was not for the correct

amounts of tax ultimately determined for those years.    On August

31, 1998, the IRS notified petitioners that it intended to levy

to collect tax owed for 1991.    The amount stated in this notice

also was not the amount ultimately determined to be due for that

year.

     Petitioners requested an abatement of interest accruing from

January 1, 1992, through November 5, 1998, with respect to

underlying deficiencies for tax years 1983 through 1986 and 1988

through 1991.2   Respondent made a final determination that


     2
        This was an amended request for abatement. According to
the stipulation of facts, petitioners filed an initial request
                                                   (continued...)
                                 - 8 -

petitioners were not entitled to the abatement of interest,

providing the following rationale:

          We did not find any errors or delays relating to the
     performance of ministerial acts, which merit abatement of
     interest for the period from January 1, 1992 to October 14,
     1998. A ministerial act, as defined in the Code and
     Regulations, is a procedural or mechanical act that occurs
     during the processing of a taxpayer’s case and does not
     involve the exercise of judgement or discretion.

                           Discussion

     Pursuant to section 6404(e)(1), as it applies in this case,

the Commissioner may abate the assessment of interest on:    (1)

Any deficiency attributable to any error or delay by an officer

or employee of the Internal Revenue Service (IRS) in performing a

ministerial act or (2) any payment of any tax described in

section 6212(a) to the extent that any error or delay in such

payment is attributable to such officer or employee being

erroneous or dilatory in performing a ministerial act.   An error

or delay is taken into account only (1) if no significant aspect

of such error or delay can be attributed to the taxpayer, and (2)

after the IRS has contacted the taxpayer in writing with respect

to such deficiency or payment.    Sec. 6404(e)(1).




     2
      (...continued)
that differed from the amended request. The former is not in the
record, and it is unclear what the exact differences are.
Respondent’s final determination appears to relate to the terms
of the amended request, and petitioners refer to the same in
their petition.
                               - 9 -

     In 1996, section 6404(e) was amended by section 301(a) of

the Taxpayer Bill of Rights 2, Pub. L. 104-168, 110 Stat. 1457

(1996), to permit the Commissioner to abate interest with respect

to “unreasonable” errors or delays resulting from “managerial”

acts as well as from ministerial acts.   This amendment applies to

interest accruing with respect to deficiencies or payments for

tax years beginning after July 30, 1996.   Id. sec. 301(c);

Woodral v. Commissioner, 112 T.C. 19, 25 n.8 (1999).    The

amendment is therefore inapplicable in this case.   Petitioners

assume in their brief that the amendment permits abatement for

managerial acts which occur after July 30, 1996.    This assumption

is incorrect:   the triggering date for the applicability of the

amendment is the taxable year of the underlying deficiency or

payment, not the date of the managerial act.

     The Department of the Treasury has interpreted a ministerial

act as “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.”   Sec. 301.6404-2T(b)(1), Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).3


     3
        The final regulations under sec. 6404 contain the same
definition of a ministerial act as the temporary regulations.
Sec. 301.6404-2(b)(2), Proced. & Admin. Regs. However, the final
regulations do not apply in this case because they apply only to
                                                   (continued...)
                              - 10 -

      Even where errors or delays are present, the decision to

abate interest remains discretionary.   Sec. 6404(e)(1).   This

Court may order an abatement only where the Commissioner’s

failure to abate interest was an abuse of that discretion.    Sec.

6404(i)(1).   The Commissioner’s exercise of discretion is

entitled to due deference; in order to prevail, the taxpayer must

demonstrate that in not abating interest, the Commissioner

exercised his discretion arbitrarily, capriciously, or without

sound basis in fact or law.   Woodral v. Commissioner, supra at

23.

      We note at the outset that petitioners’ arguments are

fundamentally flawed because they fail to assert any correlation

between an error or delay in the performance of a ministerial act

by respondent and a specific period of time over which interest

should be abated as a result of that error or delay.   Such a

correlation is required for abatement under section 6404(e).

Donovan v. Commissioner, T.C. Memo. 2000-220.   It is clear from

the record that petitioners are seeking an abatement of interest

not because of any specific ministerial act, but merely because

they are dissatisfied with the amount of time it took to resolve

their case.   In fact, petitioners stated in the abatement request

submitted to the IRS that they chose January 1, 1992, as the


      3
      (...continued)
interest accruing with respect to deficiencies or payments for
taxable years beginning after July 30, 1996. Id. par. (d).
                              - 11 -

beginning date for abatement because petitioners found that the 3

years and 7 months prior to that date was a “reasonable time” for

audit and settlement.

     Petitioners’ primary argument is that respondent abused his

discretion because he failed to adequately explain his use of

discretion in the final determination or during trial.

Petitioners rely heavily upon the case of Jacobs v. Commissioner,

T.C. Memo. 2000-123, in this argument.    Specifically, petitioners

emphasize our holding with respect to the Commissioner’s refusal

to abate interest for portions of the period September 1987

through November 17, 1991.   This was a period for which the

record provided few details concerning the actions of the IRS.

Furthermore, the final determination letters issued to the

taxpayers had cursorily concluded:     “We did not find any errors

or delays that merit abatement of interest in our review of

available records and other information”.    Noting that the

Commissioner is best able to know what actions were taken by IRS

officers and employees, we concluded that in regard to those

specific periods for which he failed to explain the basis of his

refusal to abate interest, the refusal was an abuse of

discretion.

     We agree with petitioners that, as was the case in Jacobs,

the language in the determination letter was rather cursory and

possibly left out many details concerning respondent’s inquiry
                              - 12 -

and decision not to abate the interest.4    However, unlike the

situation in Jacobs, we need not merely speculate what happened

during the relevant period between January 1, 1992, and November

5, 1998.   The record sufficiently supports respondent’s

determination that there were no ministerial acts which caused

errors or delays.   The record reflects steady progress in

petitioners’ case from audit through final settlement.

     Petitioners argue that respondent abused his discretion

because he has failed to show that the length of time it took to

settle petitioners’ case was due to anything but ministerial

errors or delays.   Petitioners again rely on Jacobs in this

argument, contending that respondent has failed to show that an

IRS employee exercised judgment or discretion in (a) responding

to partners’ requests for settlement, and (b) prioritizing or

organizing the related partnership cases.

     Although petitioners requested from respondent an abatement

of interest accruing from January 1, 1992, through November 5,

1998, the only specific subset of time in respect of which

petitioners request in their brief that we find an abuse of

discretion was the period “from 1990 through 1993".    We assume



     4
        The language was more informative in that the
determination letter in the present case specifically stated that
no errors or delays relating to the performance of “ministerial
acts” could be found for the period in question, and it proceeded
to define the term “ministerial act” in accordance with the
applicable regulation.
                               - 13 -

petitioners are referring to the period from April 2, 1991,

through January 28, 1993.    The IRS auditor completed his work

with respect to Madison Leasing on April 2, 1991, but the

proposed FPAA for Madison Leasing was not submitted for approval

until January 28, 1993.    Initially, we note that we cannot find

an abuse of discretion in respondent’s failure to abate interest

for any period before January 1, 1992, because petitioners did

not request that respondent exercise his discretion and abate

interest accruing before that date.     As for the remainder of this

period, it is clear from the letters which petitioners received

from CIGNA that during this time the IRS was working on resolving

cases involving Madison Leasing and the related partnerships.

The letters, which petitioners were receiving at least as late as

October 29, 1991, indicate that current progress was being made

toward settling docketed cases and beginning work on settlements

for nondocketed cases.    In addition, the May 7, 1992, letter from

Coopers & Lybrand to CIGNA indicates progress on the settlements

was ongoing.   Thus, even for this period the evidence in the

record shows continuing progress.

     Finally, petitioners point to three specific causes of

delay, though without correlating the causes with any specific

timeframe for abatement.    First, petitioners argue that delays

were caused by the IRS’s refusal to provide the settlement offer

when petitioners initially requested it.    As noted above, a
                               - 14 -

“ministerial act” must involve an act “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.”    Sec. 301.6404-2T(b)(1), Temporary Proced. & Admin.

Regs., supra.    It is clear that a decision to not extend a

settlement offer to petitioners at a particular stage of an

ongoing examination involving the returns of as many as 100

partners was not a ministerial act.     The IRS was far from

completing the prerequisite acts in late 1991 and early 1992 when

petitioners requested a settlement.

     Second, petitioners argue that delays were caused by

respondent’s failure to process the amended returns which showed

refunds.    There was no ministerial error in this situation

either, because employees of the IRS exercised discretion in not

processing all of petitioners’ amended returns:     They assessed

the taxes shown as due on the returns, see sec. 6201(a)(1), and

they did not process those returns showing refunds because the

taxable years in issue were subject to an ongoing examination at

the partnership level.

     Finally, petitioners argue that delays were caused by

respondent’s failure to use the most current and accurate

information in making final settlement calculations.     Petitioners

argue that this failure was due to (a) an IRS employee, Marilyn

Parsonson, writing reports indicating the amount of tax due on
                             - 15 -

the basis of what she knew to be incomplete information regarding

the taxable year 1983, and (b) IRS employees’ not using the

information provided on the unprocessed amended returns.    It is

clear from the record that, although Ms. Parsonson was initially

unable to obtain the information from IRS records, she used

information later obtained from petitioners or their accountant

in making her settlement computations.    As for the amended

returns, we have already noted that the delay in processing them

was not due to any error or delay in performing a ministerial

act, but to the ongoing partnership examination.

     Accordingly, we find no abuse of discretion in respondent’s

failure to abate interest in this case.

     To reflect the foregoing,

                                      Decision will be entered

                                 for respondent.
