DocketNumber: Docket No. 16684-06
Citation Numbers: 100 T.C.M. 144, 2010 Tax Ct. Memo LEXIS 215, 2010 T.C. Memo. 183
Judges: RUWE
Filed Date: 8/11/2010
Status: Non-Precedential
Modified Date: 4/17/2021
An appropriate order and decision for respondent will be entered.
RUWE,
The record consists of the parties' pleadings, their respective cross-motions for summary judgment, and various responses, declarations, and memoranda in support of or opposition to the motions. At the time the petition was filed, petitioners resided in Mississippi.
Petitioners' 1993 and 1994 joint Federal income tax returns were filed on April 15, 1994 *216 and 1995, respectively. Petitioners' 1993 and 1994 returns were selected for examination on June 6, 1996. No written communication by respondent was sent to petitioners with respect to either their 1993 or 1994 taxable year before that date. 2
Betty J. McGaughy (Mrs. McGaughy) was the majority shareholder and controlling officer of Tel-Eye International, Inc. (Tel-Eye), a C corporation. In July 1996, and as a result of an ongoing civil examination of Tel-Eye's taxable periods ended September 30, 1993, and March 31, 1994, the Internal Revenue Service (IRS) Examination Division (ED) formally referred the examination for Tel-Eye's tax years ending September 30, 1993 and 1994, and petitioners' 1993 and 1994 taxable years to the IRS Criminal Investigation Division (CID) for additional investigation. During the criminal investigation all *217 civil examination activity in regard to petitioners' 1993 and 1994 tax years was suspended.
Activity records indicate that from July 1996 until August 14, 2000, petitioners' 1993 and 1994 returns were under criminal investigation. In this regard, an IRS ED agent worked with a CID agent until criminal prosecution referrals were made by the IRS to the U.S. Department of Justice (DOJ) in June 2000 recommending the prosecution of Mrs. McGaughy for three
From the date of the DOJ criminal declination letter, respondent took approximately 14 months to complete the civil examination for petitioners' 1993 and 1994 tax years. During the approximately 6-month period between August 14, 2000, and February 23, 2001, the DOJ gathered files in its possession and returned them to the IRS, the CID took appropriate steps to formally close the criminal aspects of petitioners' case and made a recommendation of further action to a civil fraud coordinator, the civil fraud coordinator reviewed the information received and determined that *218 a civil fraud examination would be appropriate, and the case was returned to the examination group for assignment to a revenue agent. The civil matter was assigned on February 23, 2001, to Revenue Agent John Lockley, who began work on petitioners' case on February 26, 2001. Mr. Lockley was engaged in meetings with petitioners' representatives, coordinated development of the case with IRS officials, and gathered and analyzed relevant information. Mr. Lockley performed more than 123 hours of work on petitioners' case until it was administratively closed in November 2001, when Mr. Lockley sent petitioners' case to the review staff for issuance of a notice of deficiency.
In January 2002, approximately 2 months after Mr. Lockely sent petitioners' case to the review staff, the review staff completed their review of petitioners' case and prepared a notice of deficiency. The notice of deficiency was then forwarded to the Office of Chief Counsel in Birmingham, Alabama, for approval of the assertion of a civil fraud penalty. By March 7, 2002, the Birmingham, Alabama, Office of Chief Counsel approved the assertion of the civil fraud penalty and returned the case to the review staff for issuance *219 of the notice of deficiency. On April 4, 2002, respondent issued a notice of deficiency to petitioners in regard to their 1993 and 1994 tax years.
On June 13, 2002, petitioners filed a petition with this Court at docket No. 9985-02 contesting the notice of deficiency issued with respect to their 1993 and 1994 tax years. On February 13, 2003, a decision was entered wherein it was determined that petitioners owed deficiencies and
On or about May 26, 2004, petitioners filed separate Forms 843, Claim for Refund and Request for Abatement, with the Internal Revenue Service (IRS) requesting abatements of interest of $38,547.96 for 1993 and $15,958.01 for 1994.
On the basis of the facts set forth in the declaration attached to the motion for summary judgment, the dates relevant to petitioners' request for review of the Commissioner's failure to abate interest are as follows. A. From April 15, 1994, to June 6, 1996.—April 15, 1994, is the date petitioners filed their 1993 Federal *220 income tax return. June 6, 1996, is the date that the 1993 return was selected by respondent for examination. (The period before the first written contact.) B. From April 15, 1995, to June 6, 1996.—April 15, 1995, is the date petitioners filed their 1994 Federal income tax return. June 6, 1996, is the date that the 1994 return was selected by respondent for examination. (The period before the first written contact.) C. From July 1996 to August 14, 2000.—In July 1996 petitioners' 1993 and 1994 returns were initially referred for criminal investigation and the criminal aspects of the investigation were not closed until August 14, 2000. (The period during the criminal investigation.) D. From August 14, 2000, to November 2001.—On August 14, 2000, the DOJ issued a letter formally declining to prosecute Mrs. McGaughy. In November 2001 respondent's examining agent completed the examination for petitioners' 1993 and 1994 tax years with a referral to the relevant review staff for the issuance of a notice of deficiency. E. From November 2001 to April 4, 2002.—April 4, 2002, is the date of issuance of the notice of deficiency. F. From April 4, 2002, to April 3, 2003.—April 3, 2003, is the date after *221 which no further interest accrued because payments and credits were applied to fully satisfy petitioners' account.
By letter dated October 21, 2004, the IRS disallowed petitioners' claims for interest abatement and advised them of the procedure for requesting reconsideration of the determination with the IRS Office of Appeals. On November 11, 2004, petitioners responded with a request for reconsideration.
In late July 2005 respondent's Appeals Officer Gayla Owens was assigned to review, consider, and make a determination regarding petitioners' request for reconsideration. Appeals Officer Owens gathered information and records, held a conference with petitioners' representative, reviewed available information and records, and prepared a final determination letter. On February 23, 2006, a Full Disallowance-Final Determination letter was issued to petitioners on the grounds that no error or delay relating to ministerial acts merited abatement of interest.
(1) In general.—In the case of any assessment of *223 interest on— (A) any deficiency attributable in whole or in part to any error or delay by an officer or employee of the Internal Revenue Service (acting in his official capacity) in performing a ministerial act, or (B) 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,
For *224 purposes of
The flush language of
Congressional pronouncements and action both at the time of enactment of
Petitioners acknowledge the timing restrictions in the flush language of it is obvious that a "grossly unfair" standard must be considered *228 in evaluating each unique set of facts and circumstances. In other words, the statute should be interpreted based on strict construction of the language regarding dates, amounts, etc.; however, this strict interpretation is limited to producing an equitable result that is not "grossly unfair."
Petitioners argue that the "assessment of interest * * * for a period of over nine (9) years, clearly runs contrary to the trend set forth by both the IRS and Congress." Petitioners conclude: In the present matter, the assessment of compound interest for such a long period of time clearly defeats any notion of fair play and runs contrary to the evolving policy demonstrated by the IRS and Congress. Such "grossly unfair" acts are the limiting standard to which Congress was clearly referring in H. Rept. 99-426, at 844 (1985). Furthermore, this case far exceeds the scope of "routine" in consideration *229 of the abatement of interest. The present case sets forth unique circumstances where, in lieu of the trend enhancing the Petitioners' ability to eliminate and/or minimize interest charges, upholding the interest charges against the Petitioners would produce a result that is "grossly unfair" and in direct conflict with the application of the statue as intended by Congress. * * *
In We disagree for several reasons. First are the fundamental and closely related tenets of statutory construction that (1) a statute is to be interpreted so as to give effect to its plain and ordinary meaning unless to do so would produce an absurd or futile result, and (2) a statute clear and unambiguous on its face must be regarded as conclusive absent an unequivocal expression of legislative intent to the contrary. E.g., Although petitioners attempt to characterize the "grossly unfair" clause as a liberalization, the restrictive nature of the language would seem more rationally to be interpreted as reiterating the general narrowness of the relief afforded by the statute. In the legislative history, the "grossly unfair" clause is followed immediately by statements reprising specific limits imposed by
Petitioners have added nothing to the taxpayers' argument in
The parties agree that petitioners' 1993 and 1994 tax years were referred to the IRS's CID in July 1996 and that a criminal investigation was ongoing until August 14, 2000.
Courts have long recognized the general policy within the IRS to suspend resolution of a civil examination pending completion of a criminal examination. See, e.g.,
While a tax fraud investigation comprises both civil and criminal aspects, the criminal aspects dominate insofar as the investigation is controlled by the IRS CID.
The foregoing and related considerations must be weighed and applied by the IRS in deciding how to proceed.
Although petitioners acknowledge and do not appear to raise any direct challenge to the above rule, they posit "that while the decision to suspend civil activity in itself may not be a ministerial duty, actions prior to and subsequent to the making of the actual decision may be defined as ministerial." We disagree with their argument as applied to the circumstances of this case. See
Accordingly, we conclude that petitioners are not entitled to interest abatement for the period during which they were under criminal investigation.
Petitioners acknowledge and cite relevant judicial authority that the mere passage of time does not establish error or delay in performance of a ministerial act. Petitioners' *234 primary argument for relief, however, mirrors the argument made by the taxpayers and rejected by this Court in Since the IRS has produced a number of records that are vague, uninformative, and fail to comply with its own procedures, the Petitioners have been unable to specifically allege whether specific ministerial errors or acts actually occurred. Due to the IRS's failure to provide detailed records that would allow Petitioners to make such evaluation, Petitioners claim that they are entitled, as a matter of law, to have such acts deemed favorably to the Petitioners, and regarded by the Court as being ministerial in nature. The IRS has the burden to follow its own procedures and the law. Otherwise, the presumption must be that the IRS did not follow its own procedures and the law.
It is a well-settled principle that the Internal Revenue Manual does not have the force of law, is not binding on the IRS, and confers no rights on taxpayers.
By letter dated August 14, 2000, the DOJ formally declined to prosecute Mrs. McGaughy in regard to petitioners' 1993 and 1994 Federal income tax years. During the approximately 6-month period between August 14, 2000, and February 23, 2001, the DOJ gathered files in its possession and returned them to the IRS, the CID took appropriate steps to formally close the criminal aspects of petitioners' case and made a recommendation of further action to a civil fraud coordinator, the civil fraud coordinator reviewed the information received and determined that a civil fraud examination would be appropriate, and the case was returned to the examination *236 group for assignment to a revenue agent. The revenue agent's activity record reveals consistent activity including meetings with petitioners' representatives, meeting and coordinating development of the case with IRS officials, and gathering and analyzing relevant information. The revenue agent performed more than 123 hours of work on petitioners' case until it was administratively closed in November 2001, at which time the revenue agent sent petitioners' case to the review staff for issuance of a notice of deficiency.
Petitioners have not pointed to any specific ministerial error or delay during this period, and we perceive nothing during this period that would suggest that ministerial errors or delays occurred.
In January 2002, approximately 2 months after the revenue agent sent petitioners' case to the review staff, the review staff completed their review of petitioners' case and prepared a notice of deficiency. The notice of deficiency was then forwarded to the Office of Chief Counsel in Birmingham, Alabama, for approval of the assertion of a civil fraud penalty. By March 7, 2002, the Birmingham, Alabama, Office of Chief Counsel approved *237 the assertion of the civil fraud penalty and returned the case to the review staff for issuance of the notice of deficiency. On April 4, 2002, respondent issued to petitioners a notice of deficiency in regard to their 1993 and 1994 tax years.
Petitioners have likewise failed to identify or allege any specific ministerial error or delay during this period, and we perceive nothing during this period that would suggest that ministerial error or delay occurred.
On June 13, 2002, petitioners filed a petition with this Court at docket No. 9985-02 contesting the notice of deficiency issued with respect to petitioners' 1993 and 1994 tax years. On February 13, 2003, a stipulated decision was entered wherein it was determined that petitioners owed deficiencies and
Petitioners have failed to identify any specific ministerial error or delay during this period, and we perceive nothing during this period that would suggest that a ministerial *238 error or delay occurred.
We conclude that respondent committed no abuse of discretion in determining that petitioners were not entitled to abatement of interest pursuant to
To reflect the foregoing,
1. Unless otherwise indicated, all Rule references are to the Tax Court Rules of Practice and Procedure, and all section references are to the Internal Revenue Code as amended.↩
2. In their cross-motion for summary judgment petitioners allege that they were first contacted by respondent on Mar. 5, 1996, when they received a notice of audit prepared by Agent Monica Jones. In his amended response, respondent has shown that the Mar. 5, 1996, written correspondence relates to Tel-Eye International, Inc.'s tax returns and not petitioners'.↩
3. In 1996
4. Temporary regulations are entitled to the same weight as final regulations.
5. The provision for Tax Court review of interest abatement determinations was enacted as
Florida Hospital Trust Fund v. Commissioner , 71 F.3d 808 ( 1996 )
Frank Tavano v. Commissioner of Internal Revenue , 986 F.2d 1389 ( 1993 )
Charles G. Fargo Elizabeth A. Fargo v. Commissioner of ... , 447 F.3d 706 ( 2006 )
In the Matter of Herbert P. Carlson and Margaret P. Carlson,... , 126 F.3d 915 ( 1997 )
Sundstrand Corporation v. Commissioner of Internal Revenue , 17 F.3d 965 ( 1994 )
E. Norman Peterson Marital Trust, Chemical Bank, Trustee v. ... , 78 F.3d 795 ( 1996 )
United States v. American Trucking Associations , 60 S. Ct. 1059 ( 1940 )
Harold J. Marks, A/K/A Haley Justin Van De Mark and Lea ... , 947 F.2d 983 ( 1991 )
Sundstrand Corp. v. Commissioner , 98 T.C. 518 ( 1992 )
United States v. LaSalle National Bank , 98 S. Ct. 2357 ( 1978 )
American Tobacco Co. v. Patterson , 102 S. Ct. 1534 ( 1982 )
Badaracco v. Commissioner , 104 S. Ct. 756 ( 1984 )
Peterson Marital Trust v. Commissioner , 102 T.C. 790 ( 1994 )
Florida Hosp. Trust Fund v. Commissioner , 103 T.C. 140 ( 1994 )