                        T.C. Memo. 2003-217



                      UNITED STATES TAX COURT



           WILLIAM AND PENNY LANDVOGT, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 12189-02.                Filed July 22, 2003.


     William Landvogt and Penny Landvogt, pro sese.

     James E. Schacht, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     MARVEL, Judge:   On July 3, 2002, respondent issued a notice

of final determination disallowing petitioners’ claim for

abatement of interest with respect to their 1992, 1993, and 1994

taxable years.   Petitioners timely filed a petition under section
                                 - 2 -

6404(h) and Rule 280.1    The issue for decision is whether

respondent’s denial of petitioners’ claim for abatement of

interest was an abuse of discretion.

                           FINDINGS OF FACT

     Some of the facts have been stipulated.    We incorporate the

stipulated facts into our findings by this reference.

Petitioners resided in Janesville, Wisconsin, at the time of

filing the petition.     References to petitioner refer to Penny

Landvogt.

     In a letter dated June 14, 1994, respondent notified

petitioners that their 1992 joint Federal income tax return had

been selected for audit.     Respondent later expanded the audit to

include petitioners’ 1993 and 1994 returns.     During the audit of

petitioners’ 1992, 1993, and 1994 returns, respondent’s

examination focused on whether petitioners engaged in their

horse-breeding operation for profit pursuant to section 183.

     Additionally, in the June 14, 1994, letter, respondent

requested a meeting with petitioners in Janesville, Wisconsin, on

July 12, 1994, in order to review petitioners’ records.       In a

reply letter dated June 21, 1994, petitioner requested that

respondent’s auditor move the audit to Madison, Wisconsin, and

enclosed a Form 2848, Power of Attorney and Declaration of


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
                                - 3 -

Representative, designating Nell Ray as petitioners’

representative.    Pursuant to petitioner’s request, respondent

transferred the case to the Madison, Wisconsin, office.

     After receiving respondent’s letter dated September 6, 1994,

proposing a conference in Madison, Wisconsin, Ms. Ray called the

auditor, Kenneth Gernetzke, and scheduled a conference for

October 4, 1994.    Subsequently, Mr. Gernetzke canceled the

October 4, 1994, conference, rescheduled the conference for

October 28, 1994, canceled the October 28, 1994, conference, and

then rescheduled the conference for November 2, 1994.    Mr.

Gernetzke and Ms. Ray attended the November 2, 1994, conference.

     In addition to the conference held on November 2, 1994, Ms.

Ray and Mr. Gernetzke met to review petitioners’ records on

November 7, 1994, before petitioners replaced Ms. Ray with a new

representative, Michael Ellsworth, on December 3, 1994.    At this

point, Mr. Ellsworth requested time to “assemble additional

information” regarding petitioners’ case.    Mr. Ellsworth and Mr.

Gernetzke eventually discussed the case over the telephone on

June 28, 1995.

     In a report issued on August 28, 1995, respondent determined

that petitioners’ horse-breeding operation was not an activity

engaged in for profit and disallowed the related losses

petitioners claimed on Schedule C, Profit or Loss From Business.

The Milwaukee Appeals Office (Appeals) sent a letter to
                               - 4 -

petitioners dated October 11, 1995, notifying petitioners that

Appeals would soon arrange a conference.    On January 16, 1996,

Appeals returned petitioners’ case to the IRS Examination

Division “for further development”.    On February 21, 1996,

petitioners signed Form 872, Consent to Extend the Time to Assess

Tax, extending the period of limitations for 1992 to June 30,

1997.

     On April 10, 1996, Appeals Officer John M. McNamee held

telephone conferences with petitioners, Ms. Ray, and Mr.

Ellsworth and scheduled an Appeals conference for May 3, 1996, in

Milwaukee, Wisconsin.   Petitioners later canceled the Appeals

conference and apparently did not reschedule.    In a letter dated

May 23, 1996, Appeals Officer McNamee offered petitioners a

settlement.

     On May 31, 1996, petitioners again changed representatives,

replacing Mr. Ellsworth with David Grams, an attorney.    Mr. Grams

notified Appeals Officer McNamee of the change via facsimile on

June 20, 1996.   On or about June 27, 1996, and July 3, 1996, Mr.

Grams and Appeals Officer McNamee engaged in telephone

conferences but did not arrive at a settlement agreement.

Subsequently, on January 31, 1997, Mr. Grams signed Form 872-A,

Special Consent to Extend the Time to Assess Tax, extending the

period of limitations indefinitely for 1992, 1993, and 1994.
                               - 5 -

     Sometime during 1996 or 1997, Appeals Officer McNamee agreed

to provide petitioners with additional time in which to

demonstrate that the horse-breeding operation could be

profitable.   In a letter to petitioners dated April 10, 1998,

Appeals Officer McNamee noted that he had not received

correspondence from petitioners or their representatives for

“awhile” and drew the conclusion that the horse-breeding

operation had not met petitioners’ profitability projections.

Appeals Officer McNamee also gave petitioners 10 days to respond

to an enclosed settlement proposal, which petitioners did not

accept.

     On December 7, 1998, respondent issued a notice of

deficiency to petitioners.   On February 5, 1999, petitioners

filed a petition with this Court contesting the deficiencies.

Shortly thereafter, in a letter dated February 15, 1999, Mr.

Grams notified Appeals Officer McNamee that he no longer would

serve as petitioners’ representative.

     Petitioners’ deficiency case was tried on December 6, 1999,

in Milwaukee, Wisconsin.   This Court decided in Landvogt v.

Commissioner, T.C. Summary Opinion 2000-239, filed November 3,

2000, that petitioners did not engage in their horse-breeding

operation for profit in 1992, 1993, and 1994.   On November 30,

2000, respondent sent to petitioners Respondent’s Computation for
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Entry of Decision and a proposed Decision (the Rule 155

computation).

     At this time, petitioners hired Donald Bailey, a certified

public accountant, to assist them.       While working on the Rule 155

computation, Mr. Bailey discovered that respondent’s

determination failed to include as Schedule A, Itemized

Deductions, property taxes formerly claimed by petitioners on

their Schedules F, Profit or Loss from Farming.      Once informed of

the matter, respondent adjusted petitioners’ liabilities

accordingly.

     After several sets of revisions, on February 28, 2001,

petitioners sent to respondent the Rule 155 computation and

indicated in an accompanying letter that petitioners did not

agree to the interest amounts.    On March 19, 2001, respondent

submitted the Rule 155 computation to this Court,2 and, on April

13, 2001, this Court entered a decision, upholding the

deficiencies.

     On July 31, 2001, respondent assessed the deficiencies and

assessed interest in the amounts of $4,557.32 for 1992, $4,775.59

for 1993, and $4,144.29 for 1994.    Petitioners filed Form 843,



     2
      On Mar. 23, 2001, this Court issued a Notice of Filing of
Computation under Rule 155, advising petitioners to file their
notice of objection by Apr. 13, 2001. Petitioners filed
Petitioners’ Computation for Entry of Decision and Notice of
Objection to Respondent’s Proposal on Apr. 6, 2001, objecting
solely to the amount of interest shown as due.
                               - 7 -

Claim for Refund and Request for Abatement, on September 10,

2001, requesting that respondent abate the entire amount of

interest assessed by respondent on July 31, 2001.3    In a letter

dated December 20, 2001, respondent disallowed petitioners’ claim

for interest abatement, which decision petitioners promptly

appealed in a letter to respondent dated January 7, 2002.

     On July 3, 2002, respondent issued to petitioners a notice

of final determination denying their request for abatement of

interest for 1992, 1993, and 1994.     In the notice of final

determination, respondent found that there were no errors or

delays during the period “from April 15, 1993 to the present”

relating to the performance of a ministerial act.

     On July 19, 2002, petitioners filed a timely, but imperfect,

petition for review of respondent’s failure to abate interest.

In petitioners’ amended petition, filed on August 20, 2002,

petitioners alleged:   (1) “IRS did not correctly apply the law in

regard to assessment of tax”; (2) “There was an unnecessary delay

in assessing the tax due to IRS management failures”; and (3)

“The original assessment was not correct and not corrected until

2001 by IRS attorney James Schacht”.




     3
      The record indicates that petitioners requested on their
Form 843 that respondent abate the deficiencies in their income
taxes together with the interest assessed by respondent on July
31, 2001.
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                             OPINION

     Under section 6404(e)(1), the Commissioner may abate part or

all of an assessment of interest on any deficiency or payment of

income tax to the extent that any error or delay in payment is

attributable to erroneous or dilatory performance of a

ministerial act by an officer or employee of the IRS.4   A

ministerial act means a procedural or mechanical act that does

not involve the exercise of judgment or discretion and occurs

during the processing of a taxpayer’s case after all the

prerequisites to the act, such as conferences and review by

supervisors, have taken place.    See Lee v. Commissioner, 113 T.C.

145 (1999); sec. 301.6404-2T(b)(1), Temporary Proced. & Admin.

Regs., 52 Fed. Reg. 30163 (Aug. 13, 1987).5   In contrast, a

decision concerning the proper application of Federal tax law, or

other applicable Federal or State laws, is not a ministerial act.


     4
      Sec. 6404(e) was amended by the Taxpayer Bill of Rights 2,
Pub. L. 104-168, sec. 301(a)(1) and (2), 110 Stat. 1457 (1996),
to permit the Commissioner to abate interest with respect to an
“unreasonable” error or delay resulting from “managerial” or
ministerial acts. The amendment applies to interest accruing
with respect to deficiencies for taxable years beginning after
July 30, 1996, and is inapplicable to the instant case.
     5
      The final regulations under sec. 6404 were issued on Dec.
18, 1998, and generally apply to interest accruing with respect
to deficiencies or payments of tax described in sec. 6212(a) for
taxable years beginning after July 30, 1996. See sec. 301.6404-
2(d)(1), Proced. & Admin. Regs. As a result, sec. 301.6404-2T,
Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163 (Aug. 13,
1987), applies and is effective for interest accruing with
respect to deficiencies for those taxable years beginning after
Dec. 31, 1978, but before July 30, 1996. See id. at par. (c).
                                 - 9 -

See sec. 301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52

Fed. Reg. 30163 (Aug. 13, 1987).     The mere passage of time does

not establish error or delay in performing a ministerial act.

Lee v. Commissioner, supra at 150.

     When Congress enacted section 6404(e), Congress did not

intend that taxpayers use the provision to routinely avoid the

payment of interest.    Rather, Congress intended abatement of

interest only where failure to do so “would be widely perceived

as grossly unfair.”    H. Rept. 99-426, at 844 (1985), 1986-3 C.B.

(Vol. 2) 1, 844; S. Rept. 99-313, at 208 (1986), 1986-3 C.B.

(Vol. 3) 1, 208.    Section 6404(e) affords a taxpayer relief only

if no significant aspect of the error or delay can be attributed

to the taxpayer.    In addition, interest may be abated only after

the Commissioner has contacted the taxpayer in writing about the

deficiency or payment in question.6      See sec. 6404(e).

     This Court may order an abatement of interest if

respondent’s failure to abate interest was an abuse of

discretion.    Sec. 6404(h).   In order to prove an abuse of

discretion, petitioners must show that respondent exercised

discretion arbitrarily, capriciously, or without sound basis in

fact or law.    Rule 142(a)(1); Woodral v. Commissioner, 112 T.C.




     6
      In this case, respondent’s first contact with petitioners
was the June 14, 1994, letter.
                                - 10 -

19, 23 (1999).     We now consider each of petitioners’ arguments in

turn.

A.   Respondent’s Application of Federal Tax Law

        Petitioners contend that respondent did not properly apply

“the law in regard to assessment of tax” when assessing

petitioners’ income tax liabilities and that respondent’s failure

to abate interest on this basis was an abuse of discretion.

Respondent’s decisions with respect to the application of Federal

tax law, however, are not ministerial acts.     Sec. 301.6404-

2T(b)(1), Temporary Proced. & Admin. Regs., 52 Fed. Reg. 30163

(Aug. 13, 1987).     Accordingly, we reject this argument.

B.   Delays in the Processing of Petitioners’ Case

        Petitioners also argue that respondent caused unnecessary

delays during the processing of their case by twice canceling

meetings with Ms. Ray and generally behaving in a dilatory

manner.     Respondent contends that to the extent any delays

occurred, petitioners were primarily responsible and, regardless,

no delays occurred with respect to respondent’s performance of

ministerial acts.

        Even assuming, as petitioners allege, that an excessive

amount of time has elapsed since the audit’s inception, the mere

passage of time does not necessarily establish that respondent

delayed in performing ministerial acts.     See Lee v. Commissioner,

supra at 150; Denny’s Auto Sales, Inc. v. Commissioner, T.C.
                               - 11 -

Memo. 2002-266.    Petitioners have not identified any specific

delays attributable to respondent other than the two meeting

cancellations.    On both occasions when Mr. Gernetzke decided to

cancel the meetings with Ms. Ray, he exercised judgment and

discretion and, therefore, did not perform ministerial acts.      We

find no evidence supporting petitioners’ contention that

respondent’s failure to abate interest on this basis was an abuse

of discretion.

C.   Accuracy of the Amount of Petitioners’ Income Tax Liabilities

      According to petitioners’ third argument, respondent

inaccurately classified and evaluated information provided by

petitioners during the audit and failed to state the correct

amount of petitioners’ income tax liabilities “from the very

beginning”.   Petitioners assert that these errors entitled them

to an abatement of interest, and, thus, respondent’s failure to

abate was an abuse of discretion.    We disagree for the reasons

set forth below.

      Contrary to petitioners’ assertions, respondent’s

classification and evaluation of information during an audit

requires judgment or discretion and is not a ministerial act.

See sec. 301.6404-2T(b)(1), Temporary Proced. & Admin. Regs., 52

Fed. Reg. 30163 (Aug. 13, 1987).    The remaining allegation made

by petitioners focuses on respondent’s computation of

petitioners’ income tax liabilities in the notice of deficiency.
                              - 12 -

When computing those liabilities, respondent did not allow as

itemized deductions the property taxes originally deducted by

petitioners on their Schedules F.    Even assuming that this was a

ministerial act, for purposes of interest abatement, respondent’s

error must have contributed to errors or delays in petitioners’

payment of the liabilities.   See sec. 6404(e)(1); see also

Hawksley v. Commissioner, T.C. Memo. 2000-354; Douponce v.

Commissioner, T.C. Memo. 1999-398.

     The record indicates that respondent’s original disallowance

of deductions for the property taxes had no effect on

petitioners’ payment of their income tax liabilities.

Petitioners have never attempted to pay any portion of the

liabilities, nor do petitioners contend that they would have paid

had they known earlier the correct amount.   Moreover, once

petitioners learned of the correct total of their income tax

liabilities during discussions of the Rule 155 computation,

petitioners still made no payment attempts and even disputed the

deficiency amounts on their Form 843.   Accordingly, we conclude

that any delays in petitioners’ payment of their income tax

liabilities were not attributable to any error by respondent in

performing a ministerial act and that respondent’s denial of

petitioners’ claim for abatement of interest was not an abuse of

discretion.
                        - 13 -

To reflect the foregoing,

                                  Decision will be entered

                             for respondent.
