                        T.C. Memo. 2003-67



                      UNITED STATES TAX COURT



                 ALICE M. BEAGLES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3034-02.                Filed March 6, 2003.



     Alice M. Beagles, pro se.

     Gary M. Slavett, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   The petition in this case was filed in

response to a notice of final determination granting in part and

denying in part petitioner’s claim to abate interest on income

tax liabilities for 1983 and 1984 pursuant to section 6404(e).

After concessions, the sole issue for decision is whether the
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failure to abate the balance of the interest was an abuse of

discretion.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the years in issue, and

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

Procedure.

                         FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioner resided in Pacific Palisades, California, at the time

that she filed her petition.

     During 1983 and 1984, petitioner and her husband Robert

Beagles (the Beagles) were limited partners in Jackson &

Associates (Jackson).   The Beagles purchased their limited

partnership interest in Jackson for $5,000 in 1983.   Jackson was

a limited partner in Wilshire West Associates (Wilshire West)

during 1983 and 1984.   Wilshire West was one of approximately 50

coal programs that were sponsored by Swanton Corp., a Delaware

corporation, and were structured identically as either joint

ventures or limited partnerships.   Both Jackson and Wilshire West

were partnerships subject to the procedures of the Tax Equity &

Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat. 324

(TEFRA), provisions found in Internal Revenue Code sections 6221-

6233.
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     The Beagles jointly filed Forms 1040, U.S. Individual Income

Tax Return, for 1983 and 1984.    On the return for 1983,

Schedule E, Supplemental Income Schedule, the Beagles deducted a

net loss of $11,832.47 relating to Jackson.    The Schedule K-1,

Partner’s Share of Income, Credits, Deductions, etc., from

Jackson for 1984, however, was not received by the Beagles until

after they had filed their return for 1984.    The Schedule K-1

from Jackson to the Beagles reported an ordinary loss of $1,057

for 1984.   That amount was claimed by the Beagles on a

Form 1040X, Amended U.S. Individual Income Tax Return, for 1984

filed in April 1985.

     Donald J. Kuehne (Kuehne) was the tax matters partner (TMP)

for Wilshire West for 1983 and 1984.     John R. Jackson was the TMP

for Jackson for 1983 and 1984.    Sometime prior to December 16,

1986, the Internal Revenue Service (IRS) began an examination of

Wilshire West for 1983 under the TEFRA audit procedures, and,

sometime prior to October 1, 1987, the IRS began an examination

of Wilshire West for 1984.   Forms 872-P, Consent to Extend the

Time to Assess Tax Attributable to Items of a Partnership, for

Wilshire West for 1983 and 1984 were duly executed by Kuehne for

Wilshire West.

     At about the time that the Beagles invested in Jackson,

programs promoted by Norman Swanton (Swanton) were being

investigated by the IRS.   Although some civil investigation of
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these programs had commenced, this investigation was suspended

pending a criminal investigation of Swanton.   Ultimately, the

Department of Justice declined prosecution.

     Thirty partnerships that were involved in the Swanton

programs were formed prior to 1982, and 20, including Wilshire

West, were formed subsequent to the effective date of TEFRA.

Test cases for litigation of the Swanton coal programs in the Tax

Court were selected.   In two cases docketed in 1986, trial

commenced on February 8, 1988.    A second trial began in January

1992.   An opinion on the merits of the Swanton coal programs for

years prior to the years in issue was filed October 27, 1993.

Both the 1988 trial and the 1992 trial involved pre-TEFRA cases.

After the 1992 trial was concluded, IRS lawyers began processing

the TEFRA cases involving the Swanton coal programs.

     On August 14, 1990, the IRS sent to Wilshire West and its

TMP, Kuehne, a Notice of Final Partnership Administrative

Adjustment (FPAA).   A petition was filed in response to the FPAA

by Kuehne and was docketed in the Tax Court as No. 24109-90.     As

of the time of this opinion, decision still has not been entered

in the Wilshire West case because one or more of the partners has

pursued the litigation.   However, on April 15, 1999, a closing

agreement was entered into on behalf of Jackson.   The closing

agreement provided, in part:

          (5) The portion of the taxpayer’s deficiency for
     the taxable years 1983, 1984 and 1985 attributable to
                                 - 5 -

     the claimed Partnership losses is a substantial
     underpayment attributable to tax motivated transactions
     under Internal Revenue Code sec. 6621(c). Accordingly,
     the annual rate of interest payable on the taxpayer’s
     income tax for the taxable years 1983, 1984 and 1985
     shall be 120 percent of the adjusted rate established
     under Internal Revenue Code sec. 6621(b). The 120
     percent interest rate applies to interest accruing
     after December 31, 1984.

          (6) The taxpayer is not liable for any additions
     to tax pursuant to I.R.C. secs. 6653(a)(1), 6653(a)(2),
     or 6661(a) for the portion of the taxpayer’s
     deficiencies which are based on the disallowances of
     the Partnership’s losses and credits in any taxable
     years.

          (7) The taxpayer is not liable for any other
     penalties or additions to tax in any taxable year with
     respect to its interest.

     On March 28, 2000, the IRS mailed a letter with enclosures

to the Beagles explaining how the adjustments that were made

during the examination of Wilshire West affected their individual

tax returns for 1983 and 1984.    On June 5, 2000, the IRS assessed

a deficiency of $4,432.53 for 1983 and $269.14 for 1984 against

the Beagles, resulting from the adjustments made to Wilshire West

that passed through to Jackson and then to the Beagles.   The

deficiencies resulted from disallowance of losses claimed by the

Beagles from Jackson in excess of $2,500.   The $2,500 amount was

allowed as a deduction in 1983 equal to one-half of the Beagles’

cash investment.

     On May 28, 2000, the Beagles requested abatement of the

interest of $22,770.39 that had accrued on their tax liability

for 1983 and 1984.   At that time, Robert Beagles was terminally
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ill.    On November 20, 2001, the IRS Appeals office sent to

petitioner a letter of Partial Allowance--Final Determination.

That determination stated:

       Our final determination is to allow part of your
       request for an abatement of interest. We can allow an
       abatement for the period from May 8, 1992, to April 15,
       1999.

       We regret that we have to deny the balance of your
       abatement of interest request for the reason(s) stated
       below:

            We did not find any errors or delays on our part
            that merit the abatement of interest in our review
            of available records and other information for the
            period from April 15, 1984, to September 30, 2001.

                               OPINION

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

Commissioner may abate the assessment of interest on any

deficiency if the interest is attributable to an error or delay

by an officer or employee of the IRS (acting in his official

capacity) in performing a ministerial act.    (Amendments to

section 6404(e) in 1996 do not apply to this case because they

apply only to interest accruing with respect to deficiencies or

payments for tax years beginning after July 30, 1996.)    This

Court may order abatement where the Commissioner abuses his

discretion by failing to abate interest.    Sec. 6404(h)(1).    In

order to prevail, a taxpayer must prove that the Commissioner

exercised this discretion arbitrarily, capriciously, or without
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sound basis in fact or law.     Woodral v. Commissioner, 112 T.C.

19, 23 (1999).

     In view of the partial allowance of petitioner’s claim for

abatement, it is necessary to address only those periods in which

interest accrued between April 15, 1984, and May 8, 1992, and

subsequent to April 15, 1999.    An understanding of the earlier

period, however, requires an explanation of other events

occurring during the period for which abatement was allowed by

the Appeals office.   The period from April 15, 1999, to

September 30, 2001, is explained by the chronology in our

findings of fact, and petitioner has not argued that unnecessary

or unexplained delay occurred during that period.

     Petitioner is concerned primarily by the failure of the IRS

to notify her and her husband of the deficiencies in tax for 1983

and 1984 during the time that TEFRA proceedings were pursued

through the TMPs of Jackson and Wilshire West.    In that regard,

it is necessary to understand the parameters of litigation over

Swanton coal shelter programs.    Much of the background was

explained by the testimony of Moira Sullivan, an attorney for the

IRS charged with responsibility for the litigation.    Documents

concerning the Swanton cases were lost as a result of the

destruction of the World Trade Center on September 11, 2001.

Other explanations are found in two opinions of this Court

rendered in Swanton coal program cases.
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     Processing of the many civil partnership cases arising out

of the coal programs in which the Beagles invested was initially

delayed during a criminal investigation of the promoter, Swanton.

As we said in Taylor v. Commissioner, 113 T.C. 206, 212 (1999),

affd. 9 Fed. Appx. 700 (9th Cir. 2001):

     “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 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.

Here, after the criminal investigation was concluded without an

indictment, trial commenced in 1988.   Unfortunately, the

litigation process was disrupted because the testimony of Swanton

was stricken for violation of Rule 145, dealing with exclusion of

witnesses.   See Smith v. Commissioner, 92 T.C. 1349 (1989).
                               - 9 -

Different test cases were agreed to and were the subject of the

trial in 1992 and an opinion was rendered in 1993 in Kelley v.

Commissioner, T.C. Memo. 1993-495.     The Court found in those

cases that the taxpayers were not entitled to deductions that had

been claimed in 1979 through 1982 in relation to the Swanton coal

programs and were liable for increased interest rates under

section 6621(c) as well as for penalties for negligence.

     Petitioner is concerned because she was unaware of the

litigation that was going on in this Court.    Petitioner argues

that respondent’s failure to notify her about the deficiency

resulted in her incurring extraordinary interest under section

6621.   Under the TEFRA procedures, however, the TMP is

responsible for giving various notices to the limited partners.

See sec. 6223(g).   Section 6230(f) expressly states:

          SEC. 6230(f). Failure of Tax Matters Partner,
     Etc., To Fulfill Responsibility Does Not Affect
     Applicability of Proceeding.--The failure of the tax
     matters partner, a pass-thru partner, the
     representative of a notice group, or any other
     representative of a partner to provide any notice or
     perform any act required under this subchapter or under
     regulations prescribed under this subchapter on behalf
     of such partner does not affect the applicability of
     any proceeding or adjustment under this subchapter to
     such partner.

Petitioner was not a person entitled to notice under any special

statutory provision.   See, e.g., Taylor v. Commissioner, T.C.

Memo. 1992-219 (“pass through” partners in a partnership that is

a partner in another entity are not entitled to receive copies of
                              - 10 -

partnership proceeding notices from the IRS).   The failure to

give such notices, therefore, is not an error requiring abatement

of interest.

     Although it may provide no comfort to petitioner, the delays

experienced in processing her case were not unusual during the

period from 1984 to 1992.   A large number of tax shelter cases

were filed in this Court during the late 1970s and early 1980s as

a result of tax shelter programs such as those promoted by

Swanton.   The large number of cases led to specialized responses

by the IRS, by the Court, and by Congress.   The response of

Congress included the increased rate of interest accruing under

former section 6621(c) applicable to deficiencies attributable to

tax-motivated transactions, as explained in H. Rept. 98-861, at

985-986 (1984), 1984-3 C.B. (Vol. 2) 239-240:

          The provision is effective with respect to
     interest accruing after December 31, 1984, regardless
     of the date the return was filed.

          The conferees note that a number of the provisions
     of recent legislation have been designed, in whole or
     in part, to deal with the Tax Court backlog. Examples
     of these provisions are the increased damages
     assessable for instituting or maintaining Tax Court
     proceedings primarily for delay or that are frivolous
     or groundless (sec. 6673), the adjustment of interest
     rates (sec. 6621), the valuation overstatement and
     substantial understatement penalties (secs. 6659 and
     6661), and the tax straddle rules (secs. 1092 and
     1256). * * *

          The conferees believe that, with this amendment,
     the Congress has given the Tax Court sufficient tools
     to manage its docket, and that the responsibility for
     effectively managing that docket and reducing the
                              - 11 -

     backlog now lies with the Tax Court. The positive
     response that the Court has made to several recent GAO
     recommendations is encouraging and the conferees expect
     the Court to implement swiftly these and other
     appropriate management initiatives. The conferees also
     note favorably the steps the Court has begun to take in
     consolidating similar tax shelter cases and dispensing
     with lengthy opinions in routine tax protestor cases.
     The Court should take further action in these two
     areas, as well as to assert, without hesitancy in
     appropriate instances, the penalties that the Congress
     has provided.

          The Internal Revenue Service also has significant
     responsibilities in reducing the Tax Court backlog.
     The Service’s settlement policy should be fair and
     flexible, and only appropriate cases should be
     litigated. Although in the recent past the Service has
     offered to settle many tax shelter cases by permitting
     taxpayers to deduct out of pocket expenses, the Service
     no longer routinely offers this as a settlement. This
     is a constructive change in policy, in that a taxpayer
     should not expect to be able to deduct out of pocket
     expenses regardless of the circumstances of his case.
     The Service should assert, without hesitancy in
     appropriate circumstances, the penalties that the
     Congress has provided. In particular, the negligence
     and fraud penalties are not currently being applied in
     a large number of cases where their application is
     fully justified. The conferees note with approval the
     steps the Service has recently taken to eliminate the
     backlog in the Appeals Division.

The Court’s practice of selecting test cases and holding other

cases in abeyance pending the resolution of the test cases was

among the management tools adopted to deal with the large number

of cases.   It was not feasible to litigate simultaneously

hundreds of cases involving substantially similar issues.    Here,

respondent’s counsel turned to the group of TEFRA cases,

including petitioner’s partnership, as soon as the trial of the

Swanton test cases concluded in 1992.   Prior to that time, the
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delays are explained by the complexities and burdens of managing

the cases.

     In circumstances comparable to those here, in Lee v.

Commissioner, 113 T.C. 145, 150 (1999), the Court stated:

          The mere passage of time in the litigation phase
     of a tax dispute does not establish error or delay by
     the Commissioner in performing a ministerial act. The
     length of time required to resolve the * * * case 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 of the case necessarily required the
     exercise of judgment and thus cannot be a ministerial
     act. We, therefore, conclude that the passage of 11
     years in the litigation phase of the case at bar is not
     attributable to error or delay in performing a
     ministerial act. [Fn. ref. omitted.]

See also Jacobs v. Commissioner, T.C. Memo. 2000-123.

     In consideration of the events that were occurring from

April 15, 1984, to trial of the Kelley cases in 1992, we cannot

conclude that the passage of time is attributable to error or

delay in performing a ministerial act.   The Appeals officer’s

partial allowance of petitioner’s claim gave petitioner relief of

amounts accruing for approximately 7 years from May 1992 to April

1999.   Although that result is not satisfactory to petitioner, we

have found no basis for further relief under the circumstances.
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To reflect the foregoing,


                                  Decision will be entered

                             for respondent.
