On March 28, 2022, the Tax Court issued a Memorandum Opinion in the case of Porter v. Commissioner (T.C. Memo. 2022-25). The primary issues presented in Porter v. Commissioner were whether (i) delays in examination and litigation were attributable to IRS officer or could significantly be attributed to taxpayer; and (ii) whether the interest on a deficiency settlement should be abated.
Held: Not today, Jeremy.
Porter v. Commissioner (Very) Briefly
The IRS audited the petitioner’s 2011 and 2012 taxes, issuing a notice of deficiency in 2014, in response to which the petitioner timely filed a Tax Court petition, which was ultimately settled in 2019. The petitioner paid $1,720 of interest on the stipulated deficiency for 2011 on or around August 12, 2019, and $1,349 of interest on the stipulated deficiency for 2012 on or around February 3, 2020.
The Request for Abatement of Interest
On or around October 19, 2019, the petitioner in Porter v. Commissioner filed Forms 843, Claim for Refund and Request for Abatement, seeking abatement of interest that accrued on both deficiencies from November 30, 2013, to June 28, 2019. Petitioner alleged on line 7 of each form that the case would have settled on the same terms on the former date but for “IRS error and delay.” He made the following specific complaints:
- The petitioners (in the original Tax Court case – petitioner-husband and petitioner-wife) received no response to a letter he sent the IRS on November 26, 2013, explaining the petitioners’ position.
- The Court set a trial date of April 27, 2015, but the Tax Court had to continue the case because “the assigned [IRS] attorney was unable to respond to taxpayers for a variety of reasons.”
- The Court again continued the case per the IRS’s request dated February 26, 2016, whereafter the case was not scheduled for trial.
- The petitioners received no response to the settlement offer they tendered to the IRS on November 5, 2017, and they learned that the assigned IRS attorney had been transferred off the case and had not been replaced.
- The petitioner alleged that he and Ms. Villalpando (the Settlement Officer) resolved the case amicably in two phone calls and a four-hour meeting.
The IRS denied petitioner’s interest abatement claim in a final determination letter issued September 15, 2020.
With respect to interest accrued during the examination, the Form 886-A pointed out that IRC § 7602 authorizes the IRS to examine documents for purposes of ascertaining the correctness of any return or determining the liability of any person for any internal revenue tax.
The delay caused by petitioners’ failure to provide such documents, the IRS explained, “is not attributable to the [IRS].” As for the litigation phase of the case, the IRS noted that both parties agreed to both continuances and that the IRS was not responsible for the Tax Court’s delayed action on petitioners’ discovery motions.
On February 2, 2021, the petitioner sought review in the Tax Court of the IRS’s determination not to abate interest, and the case proceeded to trial on January 24, 2022.
Interest Abatement Process
As relevant to this case, interest on a federal income tax deficiency begins to accrue on the tax return due date and continues to accrue, compounding daily, until payment is made. IRC § 6621(a)(2) imposes interest at the federal short-term rate, determined under subsection (b), plus three percentage points.
IRC § 6404(e)(1) provides in pertinent part that the IRS may abate the assessment of interest on any payment of tax to the extent that any unreasonable error or delay in payment is attributable to an IRS officer or employee being erroneous or dilatory in performing a ministerial or managerial act.
The Tax Court reviews a denial of interest abatement for abuse of discretion, which occurs only if the IRS bases its denial “on an erroneous view of the law or on a clearly erroneous assessment of the evidence.”
The Tax Court can uphold the determination only on the grounds the IRS invoked in denying the abatement, and the IRS must clearly set forth these grounds so the Court does not have to guess how the IRS arrived at its decision.
The Tax Court considers only arguments the taxpayer brought to the IRS’s attention when it was considering the abatement claim. Although neither Congress nor the Tax Court has established what evidence the court should examine in an interest-abatement case, the Tax Court’s practice has been to make its determination after providing an opportunity for a trial de novo.
Exercise of Discretion by the IRS
The IRS did not abuse its discretion by denying the petitioner’s interest abatement claim. The petitioners delayed the examination by failing to provide the records the examiner requested and did not provide any such records in the letter petitioner claimed to have sent the IRS on November 26, 2013.
During litigation, the petitioner himself requested the first continuance the Court granted and did not object to the second. The Tax Court did not rule on the petitioner’s discovery Motions until February 2019, after which the petitioner concedes that Ms. Villalpando resolved his case in short order.
Such delays are not grounds for interest abatement because either they are not attributable to an IRS officer or employee, or a significant aspect of the delay can be attributed to the taxpayer.
The petitioner complained at trial about RA O’Neil’s delay in processing his interest abatement claim. The Tax Court noted that it “need not evaluate any such delay” because the petitioner sought abatement of interest accrued through June 28, 2019. Any delay after that date, including any delay in processing the Forms 843 that the petitioner submitted on or around October 19, 2019, is not germane to this case.
The petitioner also asked the Tax Court to abate the interest assessment on equitable grounds. This we cannot do because the Tax Court is a court of law, not equity. Thus, the petitioner *utterly* failed to establish that the IRS abused the discretion granted by IRC § 6404.
Thus, the Tax Court sustained the IRS’s determination to not abate the interest.
Footnotes in Porter v. Commissioner
- See IRC § 6151(a); IRC § 6601(a); and IRC § 6622(a). ↑
- See Lee v. Commissioner, 113 T.C. 145, 148-49 (1999). ↑
- IRC § 6404(h)(1). ↑
- King v. Fleming, 899 F.3d 1140, 1147 (10th Cir. 2018) (quoting Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990)); see also Woodral v. Commissioner, 112 T.C. 19, 23 (1999) ↑
- See SEC v. Chenery Corp., 318 U.S. 80, 93-95 (1943) ↑
- See SEC v. Chenery Corp., 332 U.S. 194, 196-97 (1947); see also Kasper v. Commissioner, 150 T.C. 8, 23 n.17 (2018) (explaining that the Chenery doctrine applies where the Court reviews an IRS determination for abuse of discretion). ↑
- See Wright v. Commissioner, T.C. Memo. 2004-69, slip op. at 8 (citing Magana v. Commissioner, 118 T.C. 488, 493 (2002)), aff’d per curiam, 125 F. App’x 547 (5th Cir. 2005). ↑
- See Ewing v. Commissioner, 122 T.C. 32, 38 (2004) (citing examples), vacated, 439 F.3d 1009 (9th Cir. 2006). ↑
- See Adams v. Commissioner, T.C. Memo. 2019-99, at *13 n.7 (explaining that IRC § 6404(e)(1) prohibits abatement where the purported delay was attributable to the taxpayer’s reasonable requests for continuances), aff’d per curiam, 811 F. App’x 276 (5th Cir. 2020). ↑
- See Lee, 113 T.C. at 150 (explaining that the “mere passage of time in the litigation phase of a tax dispute does not establish error or delay” under IRC § 6404(e)). ↑
- Stovall v. Commissioner, 101 T.C. 140, 149-50 (1993). ↑