In Uncategorized on 09/22/2015 at 16:26

Ya gotta feel for Bill and Liz Foote. They got their legals and admins denied by Judge Wherry (not a bit whimsical that time); see my blogpost “Ask Early, Ask Often,” 12/9/13.

Then they try for Section 6404(e)(1)(A) interest abatement, but Judge Goeke tells them that none of IRS’ delictions are “ministerial” (the magic word; means “mechanical,” not requiring discretion or judgment). While IRS didn’t cover itself with glory, the RA who gave the Footes such grief was misinterpreting statutes, which by definition isn’t ministerial.

The Footes’ claim that the RA acted in bad faith doesn’t cut it, either.

It’s all in 2015 T. C. Memo. 187, filed 9/22/15.

Judge Goeke lays out the ground rules: “…for petitioners’ tax years 1992, 1993, and 1996 abatement of interest is available only if a ministerial error occurred, while for tax years 1999 and 2000 relief is available if an unreasonable ministerial or managerial error is shown.

“A ‘ministerial act’ is 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. In contrast, a decision concerning the proper application of Federal tax law, or other applicable Federal or State law, is not a ministerial act. The mere passage of time does not establish error or delay in performing a ministerial act.” 2015 T. C. Memo. 187, at pp. 13-14 (Citations and footnote omitted).

As to “managerial” acts, here’s the story.

“A ‘managerial’ act is an administrative act that occurs during the processing of a taxpayer’s case and that involves the temporary or permanent loss of records or the exercise of judgment or discretion relating to personnel management.” 2015 T. C. Memo. 187, at pp. 14-15. (Citaitons omitted).

In any event, “(T)o qualify for abatement of interest under section 6404(e), the taxpayer must: (1) identify an error or delay by the IRS in performing a ministerial or managerial act; (2) establish a correlation between the error or delay by the IRS and a specific period for which interest should be abated; (3) show that the taxpayer would have paid his or her tax liability earlier but for such error or delay.” 2015 T. C. Memo. 187, at p. 15.

Tax Court reviews for abuse of discretion after IRS issues a NOD denying abatement. But for four (count ‘em, four) years of the Footes’ beef, there never was a NOD, so no jurisdiction.

As for the rest, that the RA allegedly failed to follow the plain meaning of the statute, that’s obviously discretion. Then, while IRS caved on a ton of deficiencies, they did that when the Footes came up with substantiation. It didn’t help that the Footes had to change CPAs when their first one got busted for some unrelated miscues.

The Footes fall back on the “widely perceived as grossly unfair” language in Section 6404(e), but that doesn’t offer plenary indulgence. There still has to be ministerial or managerial act, and here there isn’t.

“Petitioners argue that ‘[w]ithout question, this is such a case’ where failure to abate interest would be widely perceived as grossly unfair. However, we must abide by the fundamental tenets of statutory construction, and, in addition, the facts of the case at hand fall short of supporting an argument for a ‘grossly unfair’ exception. As is evidenced by the record, petitioners significantly contributed to any error or delay that occurred by failing to adequately maintain and supply records as requested.” 2015 T. C. Memo. 187, at p. 22.

Finally, the Footes claim the RA was a rogue agent who thought she was uncovering a massive tax cheat. But the Footes had a multiplex chain of entities and incomplete records. They were at least in part responsible for the mess that followed.

And while it took five years for the case to wind its way through Tax Court, all that was discretion and not ministerial.

So is Section 6404(e) a toothless tiger? Maybe so, but only Congress can fix it.

Best of luck with that one.


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